The report states that awarding funding before a charter agreement was executed violates the grant requirements and "creates uncertainty regarding the extent to which charter school applicants are subject to laws and regulations" that protect public funding from abuse.
The auditor's office recommended that funding be withheld until charter agreements have been signed by all parties, that start-up grant applications be reviewed properly and that the Charter School Board consider recovering state funding if other violations are identified.
State Auditor John Dougall said the review was ordered in response to a complaint about Athlos Academy and is limited to that school's grant approval process.
But the Charter School Board's actions are worrisome, he said, because charter schools are not subject to the laws governing public education such as financial transparency and property procurement codes until after formal agreements have been enacted.
"Charter schools, almost all of them, are private entities that only have a duty to the government when they sign that contract," Dougall said. "That is why it is so important to have the contract in place before any money is sent."
While the audit focused on the procedures of the Charter School Board, it follows complaints last fall by a former state lawmaker that Athlos Academy violates Utah's procurement code by leasing its location without a competitive bid process.
The charter school is operated by Athlos Academies, an Idaho-based education company, which built the Herriman facility and leases the space back to Athlos Academy of Utah for a monthly fee of $112,083.
Former Rep. Rich Cunningham said in November that the arrangement violates the spirit, if not the letter, of Utah's law by allowing a private entity to construct a school and reimburse itself with public education funding.
"We're going to have to go back and change the law if they're going to play the games like that," he said.
Charter School Board Chairwoman Kristin Elinkowski said in a written response that the board has already begun taking steps to address the issues raised in the audit.
"Prior to the reception of this report we drafted a policy that will ensure schools are not funded without the signed and executed charter agreement," she said. "The board intends to adopt this policy at an upcoming meeting."
Dougall said there is still the potential that other charter schools received start-up grants improperly. But he added that the charter board's policy would protect against grant violations moving forward.
"I'm satisfied with the response of the State Charter School Board," he said.