State Audit Finds Incredibly Few Errors in Arkansas’ ESA

Only 0.06% of spending found to be problematic

State auditors don’t give report cards. Their goal is to find cracks in the financial systems and controls of various government institutions with the goal of identifying how taxpayer dollars can be better protected long-term.

But if the Legislative Auditor of Arkansas was going to give the Education Freedom Account program (EFA) a grade, he wouldn’t award a 100, but I think he’d have to give an A.

When reviewing the $93.8 million program for the 2024-25 school year, the auditor identified $60,417 in anomalous payments. To save you a trip to your calculator app, that’s a finding of 0.06% of total spending that was problematic.

When you dive into the errors, you see that the problems were entirely paperwork or administrative issues. Here are examples of the problems:

• Submitted invoice was not itemized
• Duplicative reimbursement submission
• Duplicate account created by digital marketplace
• The Department of Education sent payments to public schools for students homeschooling through EFA

Nowhere in the report do you see evidence for alarmism. No suspicious vendors. No signs of fraud. No systemic negligence.

The Legislative Auditor had some recommendations for the Arkansas Department of Education (DOE) to improve their financial controls, which are listed in the report. But the auditors communicated those recommendations to the DOE well ahead of the report’s release. By the time the report was released to the public, the Legislative Auditor stated all changes had been completed.

These improvements included tighter enrollment validation, clearer processes when recouping erroneous payments, and strengthened account setup controls.

It is unclear to me the extent to which this audit intended to evaluate whether any expenses were approved in error. No mention was made of any non-educational spending that went through. It is very possible that this is the case: a team at Opportunity Arkansas did a line-by-line review of EFA purchases and found no instances of approved expenses conflicting with the DOE’s regulations around educational expenses.

There are two lessons here.

The first lesson is that the school choice movement is right to have high expectations for the administration of ESA programs. It is fair to expect the government agency tasked with administering the program and the firms that it hires to manage the digital marketplace to have tight enough controls to keep taxpayer money from slipping through the cracks. And it is justified to expect administrators to make timely reforms, when necessary, to improve internal controls. Arkansas demonstrates that programs can be run efficiently and effectively.

And that brings us to our second lesson. The auditor’s report provides even more evidence that the Arkansas legislature’s recent efforts around preventing misuse are out of proportion. It would be reasonable to introduce new rules and regulations if there was evidence that widespread misspending had occurred. It’s unreasonable to make participating in the program harder for everyone when existing empirical evidence tells you erroneous spending is this microscopic. The opportunity cost is just too high. Looking at this auditor’s report, it appears that the efforts of the legislature, however well intentioned, are a solution in search of a problem.

Most ESA programs are brand new, and it’s understandable to have some growing pains as administrators learn how to operate them. Policymakers should not immediately throw the baby out with the bathwater if it takes some time for vendors to get hired, processes to get stood up, and for initial questions and ambiguities to be worked through. Those are issues we’ve seen in other kinds of government programs as well.

Arkansas’ ESA program was not without its startup challenges, but for Arkansas’ DOE to have worked through those issues to now run as tight a ship as they do, and for them to go above and beyond to acknowledge how they can improve and immediately implement improvements, is commendable.

Every state has its own story, but thus far, Arkansas is showcasing the potential of school choice programs. Arkansas has a universal, formula-funded program that, according to the 2026 ABCs of School Choice, grew nearly 10x in student participation from 2024 to 2026 (from 4,795 students to 46,578). Those 46,578 students are utilizing 166 providers or schools. Despite the rapid expansion, Arkansas has been able to keep erroneous payments to a mere 0.06% of program spending. It can be done.

But as much as those of us outside of Arkansas like to look at this program with a mix of excitement and envy, it is the taxpayers of Arkansas who should be most pleased with this report. Their dollars are being put to use the way policymakers intended.

This was originally published to our Substack.