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After Michael Pocrnich was accused of stealing more than $40,000 from one of his charter school clients in 2022, his accounting firm melted down, leaving dozens of Minnesota charter schools scrambling to find a new financial adviser.

The collapse of St. Paul-based Anton Group comes at a critical time for charter schools, which are contending with a shortage of firms capable of navigating their complex finances.

"We are hearing about a lot of situations where schools have lost their auditors and can't find a new one," said Joey Cienian, executive director of MN Association of Charter Schools, which represents the state's 180 charter schools. "It has been a huge problem."

In 2023, an association survey showed that 29% of the state's charter schools lost their auditor, and some were still struggling to find a new one as the deadline for financial reports neared on Dec. 31, Cienian said. As a result of the shortage, financial service costs have doubled or tripled for some charter schools, he said.

Legacy of Dr. Josie R. Johnson Montessori, a Minneapolis charter school that shut down last week amid financial trouble, lost its auditor last year and has yet to submit audits for 2022 or 2023 to the Minnesota Department of Education (MDE), according to the school's authorizer, Osprey Wilds.

"They were misled by their financial services provider into believing their audit was underway," said Erin Anderson, Osprey Wilds' director of charter school authorizing.

Anderson declined to identify the firm, and the school's leader did not return calls.

MDE officials said 46 charter schools missed the 2023 reporting deadline, up from 41 last year. Spokesman Kevin Burns said the department has not withheld any funds related to delays.

State Auditor Julie Blaha said she is aware of the shortage in financial services, noting that several townships and small pension funds also lost their longtime auditors in 2023. Blaha said she will ask state legislators to consider widespread changes in auditing requirements at this year's legislative session, noting that some low-risk entities probably require less monitoring.

"I wouldn't propose cutting auditing requirements for charter schools, but we can look for other places where we can recalibrate so more resources are available," Blaha said. "We aren't going to be able to hire our way out of this. We are going to have to change how we do that work."

Some charter school leaders said they have struggled for years to find reliable financial advisers.

Dennis Carlson, who took over the state's largest charter school program in 2016 after retiring as superintendent of the Anoka-Hennepin school district, said he was stunned to discover he inherited a $200,000 deficit at Minnesota Transitions Charter Schools. The reason for the surprise? The most recent audit showed the school had a surplus of $1.4 million.

"The auditor there was just unscrupulous," said Carlson, who also caught a transportation vendor engaged in double billing, costing Minnesota Transitions an extra $500,000 a year.

Carlson said fraud and overspending can be difficult for charter school leaders to uncover because so many of them lack financial expertise. He said MDE should provide more oversight of charter schools and their authorizers, and offer more training to the people running the schools. He said authorizers and charter school boards also need to step up their supervision.

"With the track record we've had with fraud in Minnesota, it shows that people need to do a better job on accountability," said Carlson, who retired from Minnesota Transitions in 2018. "We have to make sure these tax dollars are spent appropriately."

Theft led to firm's collapse

The Anton Group's demise started in February 2022, when a bank employee flagged a potentially fraudulent transfer of $106,071 from one of the firm's biggest clients, Noble Academy in Brooklyn Park. The transaction raised concerns because the money was being sent to a private account controlled by Pocrnich, not the firm's regular business account, according to court records.

Though school officials voided the transfer, employees soon discovered that Pocrnich had previously transferred $42,500 from Noble Academy to his personal account in two transactions, claiming it was for accounting services. But Anton Group employees said Pocrnich was unable to produce invoices supporting the payments, court records show.

Dawn Jenkins, who started the firm with Pocrnich in 2014, confronted her partner about the payments. Instead of repaying the money, Pocrnich "offered to pay Jenkins in exchange for keeping his theft quiet," according to a lawsuit filed by one of his former partners.

Jenkins declined and told the other owners of the firm, who placed Pocrnich on unpaid leave and investigated the extent of his wrongdoing. According to the lawsuit, the probe showed his theft from Noble was "just the tip of the iceberg." The other owners found that he had stolen from other clients and lied to staff when they inquired about the "illegal transactions."

Jenkins and the other owners reported their findings to the Minnesota Board of Accountancy, according to the lawsuit. In May, the board revoked Pocrnich's CPA license and fined him $20,000.

The Anton Group also reported its concerns to authorities in Ramsey County, who charged Pocrnich in October with one count of theft by swindle, a felony. Pocrnich agreed to plead guilty to the charge last week. Sentencing is set for March 4.

Neither Pocrnich nor his attorney returned calls.

Pocrnich's theft prompted his former partners to dissolve the Anton Group in August 2022, saying that Pocrnich's "egregious conduct" destroyed the company's reputation, court records show. At the time, the firm was generating $3 million per year in revenue.

Several of the partners decided to start over with a new firm, EdFinMN, which retained several key employees, court records show.

But it was a tough breakup. Jenkins turned down an offer to be a new co-owner of the venture, citing the "emotional and mental strain of Pocrnich's actions," according to an affidavit filed by Kyle Knudson, who bought a 10% share in the Anton Group in 2022 just before the thefts became known.

Court records filed by Pocrnich indicate EdFinMN held onto as many as 24 former charter school clients, which would be 10 fewer than the Anton Group reportedly had in 2021. In an email exchange with the Star Tribune, Knudson — who is EdFinMN's chief executive officer — declined to address any downsizing.

Scott Brown, chief financial officer at EdFinMN, said in an email that he plans to cite the experience as an example for his clients, noting, "Malfeasance can happen by anyone and almost anywhere."