A new inspector general’s report says that Chicago forfeited $2 million in tuition-based preschool payments from hundreds of parents, including 140 school district and police employees, because of tuition fraud and mismanagement.

Chicago is in the first year of a universal pre-kindergarten rollout that will take four years to complete. Even though the program is in flux and the tuition-based programs are intended to ultimately phase out, the report from the inspector general for the Chicago school board, Nicholas Schuler, still highlights lingering problems with the complex way the district oversees preschool.

“If we do move to universal pre-K, that will change all of this,” Schuler said. But, he added, “for us, being about accountability and transparency, it’s a good example of how there has to be adequate oversight and adequate auditing of systems that are in place. This report shows a process that, over time, had been neglected and virtually forgotten about.”

In a statement, district spokeswoman Emily Bolton said the school system is “dedicated” to expanding educational opportunities for students, including universal pre-K, and that it was strengthening several internal practices as a result of the report.

As the district transitions to a free universal pre-K model, we have committed to several significant actions to better recover outstanding debt and ensure payments are collected in a timely manner,” the statement read.

The report, which you can read in full below, highlights missed payments going back to the 2007-08 school year. But much has changed, and will continue to change, in the way Chicago manages preschool for tens of thousands of children.

Currently, two agencies — Chicago Public Schools and the Department of Family and Support Services — share the responsibility for managing the city’s pre-K system. Families in many neighborhoods can choose between seats in school or community centers, and how much they have to pay or whether the seat is free varies. Until this year, some families paid nothing, others paid sliding-scale tuition, and still others paid up to $14,000 a year. Most classrooms are full-day, others are in partial-day programs.

The district has since phased out sliding-scale tuition programs, and only 11 schools — all of which are on the North Side or in the South Loop — still charge tuition for seats. There are plans to ultimately eliminate tuition requirements for children entirely — but that decision will ultimately be left up to the next mayor to see through.

Both Toni Preckwinkle and Lori Lightfoot, who are vying for the job of Chicago mayor in an April 2 runoff, have said they would continue on the path with universal pre-K, which outgoing Mayor Rahm Emanuel announced last spring.

Among the highlights from the inspector general’s report:

  • City employees who falsified their income or did not pay their fees included employees of Chicago Public Schools and the city’s police department. The vast majority of CPS-employee debtors owed money through a sliding-scale program that calculated fees based on income. That program was phased out for the current school year, but the district will still collect what is owed, a district spokeswoman said.
  • The report highlights inconsistencies with a board policy that says district employees can be disciplined, or even fired, for not paying city parking tickets but they faced no such penalties for not paying CPS pre-K bills.
  • The city solicits applications through a universal application website. The report said the form is “flawed” because it lacks an attestation of truthfulness, has no place for a signature and provides no clear indication of who filled out the form. In a statement, the district said it plans to work with the city agency that shares responsibility for pre-K to improve the form.
  • Beginning in 2007, the school district hired a for-profit vendor to collect tuition and fees from parents, but the vendor’s contract did not go through the procurement department and the school board did not sign off on the report. The inspector general’s report calls this a “dangerous business practice” since there was no written agreement between the vendor and the district.
  • That for-profit vendor, Smart Tuition, charged a range of late fees and processing fees to parents without written approval from the district, the report alleges. Charges last school year ranged from $46 to $50 for processing fees and from $20 to $90 per late payment.
  • In the past four years alone, the vendor collected nearly $20 million from district parents and withheld more than $240,000 of that amount in processing fees as well as another $148,000 in late fees, an analysis of the vendor’s records indicated.
  • The report also raises the issue of the frailty of the city’s preschool data system. The report said that three different databases housed pre-K application information. “This created the opportunity for numerous data errors and billing mistakes.”

The report recommends that, moving forward, the district undergo competitive bidding for billing vendors, charge consistent fees and monitor that practice, and seek repayment of debts from city employees, including those who work for the school district.

The report also said the city should work with the Department of Family and Support Services to add disclosures to the online application form.

The district spokeswoman said that Chicago Public Schools would pursue debt collection from employees and that it was negotiating a new contract with the vendor that would include provisions for consistent fees and a reporting system for more regular oversight.