The Arizona Department of Education has mishandled millions of dollars through the Empowerment Scholarship Account program, the Arizona Auditor General’s Office says in a new report.
Among the report's discoveries: Auditors found the state could not prove it reviewed or took action in over half a million "high risk expenditure transactions" from July 2023 to October 2025, totaling nearly $100 million. The program sometimes doesn't address potentially unlawful purchases using ESA funds until deadlines to recover the misspent money have passed, the report states.
The controversial ESA program allows families to take money the state would be spending on their child in public school. They can then use that money for homeschooling costs or private school tuition.
The report arrives amid ongoing criticism by opponents, including Democratic Gov. Katie Hobbs, who say the program siphons money from K-12 public schools while giving wealthy people a break on tuition. Republican leaders, however, cherish the program as an alternative to what they see as a failing public school system and have been loath to place guardrails in the rules to prevent abuse.
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Republican Superintendent of Public Instruction Tom Horne has been met with criticism for what some say is a lack of accountability within the program. Audits have shown that some families have purchased items like diamond rings and lingerie with the funds.
Horne has maintained that the Department of Education cannot monitor the thousands of purchases being made through the ESA program due to understaffing. It currently uses a process in which every purchase under $2,000 is automatically approved. Full accounts will be audited if an “unallowed” purchase shows up in a randomized audit.
But the new report paints the $1 billion-plus program as ripe for abuse due to neglected or weak reviews of purchases.
One review of 15 transactions found "deficiencies" in the process of 14 of them. Another found the Department of Education failed to identify 25 samples of 63 transactions with problems, including "missing documentation, indicators of possible misuse, overpayments, and unallowable expenses."
Failing to conduct reviews or perform timely reviews on transactions that internal audits in the program found suspicious means "public monies may be at risk of being misused."
Horne declined comment, referring The Arizona Republic to the ADE's response in the report.
Auditor general: ADE's claims 'misleading'
Arizona Auditor General’s Office slammed the education agency in the report for "misleading" its investigators.
Auditors disputed the department's claim that it audits 2 million orders for education tuition and expenses, saying "we found in practice that the Program’s audit methodology did not constitute a comprehensive risk-based approach."
Similar criticism was echoed through the report, detailing how auditors were told about robust processes to catch misspending, while documentation — or the lack of it — told a different story.
In another example, program officials "represented to us on multiple occasions that it was selecting 30% of orders for audit according to its undocumented policy and procedure. However, when we found contradictory evidence through our observations that demonstrated the Program’s percentage of transactions assigned for an audit was lower — 6.5% to 23.9% — the Program pivoted and reported it was in fact 'a goal' and not its undocumented policy and procedure."
The Department of Education doesn't agree with the findings, auditors noted.
In its response to the report, ADE said it “does not concur” with the recommendation that it should use a comprehensive risk-based auditing system.
ADE bristled in its response over being accused of selecting the transactions for audit randomly, as opposed to looking for risky transactions. ADE said the transactions are not random, and that they are pulled based on factors like keywords associated with prohibited items and “riskier transaction types and expense categories.”
“When the ESA program is provided adequate funding to expand its operations, formally documenting all its current policies and procedures will be one of its priorities,” ADE said in its response.
The Auditor General recommended that the ADE evaluate risk factors in ClassWallet, a company that manages, tracks and distributes ESA funds. But ADE said it had already implemented that before the recommendation came from the office.
“The fact that we worked with ClassWallet to develop the metrics in the tool demonstrates that we have identified risk factors that meet the Program's needs. As we already do, we will continue to assess risk and work with our platform partner to meet evolving risk environments,” ADE said in its response.
The Auditor General’s Office said that at the time of the audit, it was “unable to support the assertion that it has corrected deficiencies, even after we asked that it provide documented evidence or other correspondence.”
ADE pushed back on the overall tone of the audit report, saying in its response that auditors implied the department "does not conduct, document, and take further due process action on unallowable items in the two-year window prescribed in Arizona Administrative Code.”
But the report states its findings in samples of orders can't be applied to "the entire population" of transactions, and ADE shouldn't "make such general statements about what we found."
Conflicts of interest
The report also detailed how the Department of Education wasn't doing enough to check potential conflicts of interest by department employees who use the program.
A prime example of that problem is the executive director of the program, John Ward, according to the audit.
The executive director had 12 ESA transactions auto-processed without an independent review, while two families that the program has identified "as being conflicts for executive director had their transactions reviewed quickly and had missing documentation, unallowable expenses, and overpayments totaling $4,031."
The report also noted that a transaction for Ward's child for music lessons did not include the required evidence of instructor accreditation. Ward didn't immediately return a call seeking comment.
Other examples of potential conflicts show "management is unable to ensure" required reviews are taking place for certain transactions, "thereby increasing the risk that public monies were misused."
