State examining finances of charter founder's schools

State officials are beginning to scrutinize the finances of an educational complex built by Eric Mahmoud on the North Side of Minneapolis, which has struggled financially despite its stellar record of schooling poor black children.

The Minnesota Department of Education disclosed that it asked the legislative auditor last week to review the financial structures of Harvest Prep, Mahmoud's celebrated school, as well as its three sister charter schools operating as Best Academy.

Legislative Auditor Jim Nobles said his office will review documents and concerns raised by the department to determine whether they indicate a potential misuse of public funds. Nobles said one area to be reviewed dates back to Mahmoud's involvement with a boarding school on his campus from 2001 to 2003, a money-losing venture known as Synergy Academy that ended with Hennepin County withdrawing its support.

Mahmoud said in an e-mail that he has not gotten any inquiries from the state. He declined requests for an interview, but said via e-mail that recent financial troubles are the result of the Legislature's hold-back of school funding and are therefore unrelated to management of the schools.

"He's a guy that has had a rough spot but has moved forward," said Louis King, a Mahmoud supporter and a board member of Mastery Schools, Mahmoud's latest venture, scheduled to open this month. "He's working his butt off."

Mahmoud has won both local and national recognition for high achievement levels with a student body that is almost entirely black and poor. Last week, Harvest achieved the highest test scores in the state for high-poverty schools, with Best close behind. He was named in June to the hall of fame of a national charter advocacy school group.

Mahmoud currently oversees a nonprofit educational complex of 900 students with annual revenues of more than $12 million. He and his wife, Ella, operate SEED Daycare, a management company that oversees a preschool and serves as landlord and supplies administrative services to Harvest and Best. Mahmoud also is the head administrator for the schools. Mastery is one of four charter schools Mahmoud is scheduled to open in a 10-year partnership with Minneapolis Public Schools.

Revenue suffered after two charter schools that had rented space in SEED's building moved out in 2006 and 2009. According to tax filings, SEED lost about $1.3 million from mid-2007 through mid-2011.

In 2001 and 2009, Mahmoud's schools missed debt payments on bonds that helped finance the building used by Harvest and Best. As a result, beginning in 2011, investors required SEED to operate with a financial consulting firm on-site.

String of difficulties

In an e-mail, Mahmoud said the school is in compliance with a forbearance agreement, which means investors are holding off on exercising such remedies as seizing SEED's building at 1300 Olson Memorial Hwy. and other assets.

Mahmoud, who is being paid $273,000 annually and has lent the schools as much as $594,594 at a time to keep them going, has also struggled financially over the years. Three metro-area properties he and his wife owned have been foreclosed on, they have had to repeatedly pay off state and federal tax liens and he's currently serving five years' probation after pleading guilty in 2010 in a mortgage fraud case in Georgia.

Mahmoud said in an e-mail that the charge was dismissed last year but the prosecutor's office said that's incorrect. A conviction will not be entered if he completes his probation without violation, according to his sentence.

"This new information is troubling given that we were recently made aware of questions surrounding the finance structures of Harvest Prep and Best Academy, and began an inquiry to gather information," said Charlene Briner, chief of staff for Education Commissioner Brenda Cassellius. "We subsequently determined that the scope of the inquiry was beyond the capacity of [the Minnesota Department of Education] to conduct. As a result, we turned our findings over to the legislative auditor for a full review. It will be up to the legislative auditor to determine further action."

Alberto Monserrate, the Minneapolis school board chair and a charter board alumnus, said he hadn't previously known about any of these issues. "My first reaction is I want to find out more," he said. But he said he's confident that the agreement the district crafted with Mahmoud's Mastery school provides sufficient oversight and accountability for its finances.