State auditors identified a litany of issues with Arizona’s $1 billion school voucher program that they say could put public dollars at risk.
In a new report, the Arizona Auditor General’s Office accused the Department of Education of failing to properly administer the Empowerment Scholarship Accounts, or ESA, program that is now used by more than 100,000 students across the state to pay for private or homeschool costs.
That includes allegations that the department did not always follow up on potentially problematic purchases and is haphazardly applying its own policy that automatically greenlights transactions under $2,000 before reviewing them later.
For instance, the auditors reviewed a sample of 63 voucher transactions between July 2023 to October 2025 totaling $251,446. They found that 25 purchases worth a combined total of $86,599, or 34% of the total dollars examined, had issues.
That includes 11 transactions that lacked proper documentation to show the purchases were related to a proper education expense and seven that lacked accreditation documentation showing the vendor was qualified to provide instruction.
Only two purchases from the sample, totaling about $2,000, were explicitly deemed unallowable expenses. However, auditors found $17,531 in purchases with “indicators of possible misuse” and nearly $10,000 in overpayments.
For example, auditors found evidence that a voucher user sent nearly $9,000 in tuition payments to a PayPal account registered in their name. ClassWallet, a third-party contracted by the state to help administer the voucher program, flagged the purchase for further review.
“However, the program lacked documentation that demonstrated Program management reviewed this purchase to ensure it was allowable and complied with Program rules,” according to the report.
The report says the department referred the case to the Attorney General’s Office after it was flagged by auditors.
Horne: ESA program 'is being operated appropriately'
In a response to state auditors, Department of Education officials disagreed with a bulk of the findings.
And Superintendent of Public Instruction Tom Horne said the program “is being operated appropriately and has been falsely and unfairly attacked by its critics.”
“The Auditor General’s report completely demolishes the myth about misspending in the ESA program,” Horne said in a statement. “The potential is miniscule and far less than other government programs. With a budget of a billion dollars, the Auditor General found approximately $86,000 – that is 0.0086 percent – of potential ESA dollars at risk.”
In the report, the Auditor General’s Office acknowledged that the 63 transactions it reviewed should not be “projected to the entire population,” meaning auditors are not suggesting the overall program has a 34% error rate.
However, they argue the transactions do expose systemic problems with the way the department is administering the voucher program, which is expected to cost Arizona more than $1.2 billion next year.
“By not conducting or timely conducting reviews of transactions that were identified as unallowable or missing required documentation, the Program’s public monies may be at risk of being misused,” according to the report.
Risk-based audits
Auditors connected many of the issues to Horne’s decision to fast-track approval of smaller purchases in late 2024. That was in response to an approval backlog that had forced some families to wait months before being reimbursed for their school purchases.
The report noted that the Department of Education did not consult with Auditor General when developing its process for reviewing purchases, which appears to violate a state law passed in 2024, which requires it to develop “risk-based auditing procedures” for the voucher program “in consultation with the Office of the Auditor General.”
According to the report, auditors identified 2.3 million transactions totaling $654 million that were automatically processed under the policy between Dec. 17, 2024 and Jan. 31, 2026.
And auditors said that policy has been applied unevenly and allowed many purchases to go unvetted.
For instance, between September 2025 and January 2026, the department used its risk assessment tools to look at transactions made through ClassWallet. But the department didn’t apply the same scrutiny to prepaid debit cards or reimbursements, which accounted for around $102 million in purchases during the time period.
Auditors also said the department told them that it planned to audit 30% of those smaller purchases after the fact.
But, in reality, they only audited between 6.5% and 23.9% of transactions during a five-week period in October 2025, according to the report.
The Department of Education largely dismissed the allegations and defended its auditing process.
“The auditor general premises her finding on 2 arguments. First, her team indicated that we randomly chose orders to audit. That is untrue,” according to the department’s official response. “ADE conducts risk-based audits of the nearly 2 million orders submitted by ESA families annually.”
The department said it considers a variety of factors while screening purchases, including keyword searches for unallowable items, audits of riskier transaction types and AI tools – though the auditor noted ADE never provided evidence those AI tools are in use.
Staffing
At the time, Horne said the decision was necessary, because the Legislature had not provided his department with funding to hire staff to keep up with the explosive growth in the ESA program after Republicans expanded eligibility to all students in the state in 2022.
Those problems persist.
“We operate on four-tenths of 1 percent of funds distributed to operate this program,” the department told auditors. “That extremely low level of funding does not allow for the Program to do much more than to prioritize day-to-day operations.”
Republican lawmakers who control the state Legislature have acknowledged that staffing at the department hasn’t kept pace with the voucher program, which has seen enrollment climb by more than 700% since universal expansion went into effect.
But they have done little to bolster ESA staff despite lobbying by Horne, their fellow Republican.
Lawmakers did give the department a $10 million budget bump in 2023 that could have been used for staffing. But Horne, and the legislator who inserted that line item into the budget, said that money was earmarked for marketing, not running, the voucher program.
But whether more staffing will solve the problem is an open question.
Auditors said the department has failed to document policies for reviewing voucher purchases or to provide formal or ongoing training to staff.
Again, the Department of Education disagreed with that assessment.
“As explained to the auditor general's team, we train through direct instruction by experienced team members, demonstrations on live data in ClassWallet, and guided review and instruction of the ESA handbook,” according to ADE’s response.
The department said it would document its procedures when it has enough staff to do so.
