Minnesota Internship Center, Relator v. Minnesota Department of Education

STATE OF MINNESOTA
IN COURT OF APPEALS
A23-0064

Minnesota Internship Center,
Relator,

vs.

Minnesota Department of Education,
Respondent.

Filed September 25, 2023
Affirmed
Cochran, Judge

Minnesota Department of Education

Jack Y. Perry, Brayanna J. Bergstrom, Taft Stettinius & Hollister LLP, Minneapolis,
Minnesota; and

John Cairns, John Cairns Law, P.A., Minneapolis, Minnesota (for relator)

Keith Ellison, Attorney General, Alec Sloan, Martha J. Casserly, Assistant Attorneys
General, St. Paul, Minnesota (for respondent)

Considered and decided by Wheelock, Presiding Judge; Cochran, Judge; and

Frisch, Judge.

SYLLABUS

1. Minnesota Statutes section 127A.41, subdivision 3 (2022), when read in

conjunction with Minnesota Statutes section 124E.16, subdivision 1(a) (2022), authorizes

the commissioner of education to conduct audits of charter school records “for the purpose

of verifying” pupil counts and state aid entitlements.

2. The authority of the commissioner under section 127A.41, subdivision 3, to

conduct audits and to order “increases or decreases” in state aid based on audit results is

separate from and is not limited by the authority of the commissioner to “reduce or

withhold” state aid for violations of law under Minnesota Statutes section 127A.42 (2022).

OPINION

COCHRAN, Judge

In this certiorari appeal, relator Minnesota Internship Center (MNIC) challenges a

decision by the commissioner of education ordering a downward adjustment to the amount

of state education aid received by MNIC after an audit by respondent Minnesota

Department of Education (MDE) found that MNIC had overreported the number of

students attending its charter school. MNIC principally argues that MDE lacked authority

to conduct the audit and order adjustments to MNIC’s state aid because (1) MDE

conducted the audit under Minnesota Statutes section 127A.41, subdivision 3, which

MNIC contends is inapplicable to charter schools, and (2) the audit was an investigation of

a violation of law that MDE could only pursue under a different statutory provision,

Minnesota Statutes section 127A.42. In the alternative, MNIC argues that the

commissioner’s decision to reduce MNIC’s state aid is arbitrary and not supported by

substantial evidence.

We first conclude that the commissioner has the authority under section 127A.41,

subdivision 3, to audit the records of charter schools and to order adjustments in state aid

based on the audit results. We next determine that, under the facts of this case, MDE was

not required to proceed under section 127A.42 instead of section 127A.41, subdivision 3.

Finally, we conclude that the commissioner’s decision is not arbitrary and is supported by

substantial evidence. Accordingly, we affirm.

2

FACTS

The commissioner of education is charged with distributing state aid to Minnesota

school districts and charter schools, 1 including the two types of aid at issue in this

appeal: general education revenue and compensatory education revenue. See Minn.

Stat. § 126C.10, subd. 1 (defining general education revenue), subd. 3 (defining

compensatory education revenue) (2022). General-education-revenue entitlement is

calculated in part based on the district’s or charter school’s average daily membership

(ADM). 2 See Minn. Stat. §§ 126C.05, subds. 1, 5, 8, .10, subds. 1-2e (2022).

Compensatory-education-revenue entitlement is calculated in part based on the number of

students eligible for free or reduced-price lunch who were enrolled in the district or charter

school on October 1 of the previous fiscal year. See Minn. Stat. §§ 126C.05, subd. 3, .10,

subd. 3 (2022). To ensure complete and accurate records for purposes of calculating state

aid, MDE requires districts and charter schools to maintain a record of each student’s

1
The Minnesota Education Code defines “district” as “a school district.” Minn.
Stat. § 120A.05, subd. 8 (2022). Charter schools are public schools, entitled to receive
state aid in the same manner as districts. Minn. Stat. §§ 124E.03, subd. 1, .20, subd. 1,
.24(a), (c) (2022). The Education Code does not define “charter school” but it classifies
“districts” as “common, independent, special, or charter districts.” Minn. Stat. § 123A.55
(2022) (emphasis added). And this court has held that “charter districts” means “charter
schools.” Tipka v. Lincoln Int’l Charter Sch., 864 N.W.2d 371, 375 (Minn. App. 2015).
Thus, the commissioner must distribute state aid to all Minnesota school districts and
charter schools.
2
ADM equals the sum for all pupils of the number of days of the school year that each
student is enrolled in the district or charter school, divided by the number of days that
school was in session. Minn. Stat. § 126C.05, subd. 8(a) (2022). A student is “enrolled”
in a district or charter school from the date of entry until the date of withdrawal. Id. If a
student is absent for 15 consecutive school days during the regular school year, the student
is considered “withdrawn” and cannot be included in ADM. Id.

3

attendance, including entrance and withdrawal dates, for a minimum of three years. See

Minn. Stat. § 127A.41, subd. 5 (2022) (requiring districts to keep “a record of each pupil’s

daily attendance, with entrance and withdrawal dates” for at least three years).

MNIC is a non-profit corporation that operates a charter school in Minneapolis.

MNIC is authorized by Pillsbury United Communities (Pillsbury). 3 In fiscal year (FY)

2018, which spanned the 2017-18 school year, MNIC reported having 845 students

enrolled and an ADM of 520.98. MNIC reported this information to MDE through the

Minnesota Automated Reporting Student System (MARSS). As a result, MDE distributed

$5,747,413.51 in general education revenue to MNIC for FY 2018. For FY 2019, MNIC

reported that 485 students were eligible for free or reduced-price lunch based on their

attendance during FY 2018. Consequently, MDE distributed $1,587,717.30 in

compensatory education revenue to MNIC for FY 2019.

On September 17, 2018, MDE received a written complaint alleging that MNIC

engaged in several practices that potentially violated state and federal law. One of the

alleged practices was manipulation of electronic attendance records to artificially inflate

its enrollment and ADM. The complainant specifically alleged that MNIC intentionally

refused to drop students after 15 consecutive absences so that the students would not be

considered withdrawn and excluded from ADM. MDE notified Pillsbury about the

complaint. Pillsbury requested that MNIC respond to the allegations. On

3
An “authorizer” is an organization that may authorize a charter school to operate and must
oversee any charter school that it authorizes. Minn. Stat. §§ 124E.05, subd. 1, .06, subd. 4
(2022).

4

October 24, 2018, MNIC provided the following information to Pillsbury regarding its

attendance records:

MNIC records student attendance in two different ways.
First, when students enter the school building each day, they
sign in on a paper sheet at the front desk. This paper record is
then transcribed into the school’s [electronic] student
information system at the end of each school day. Second,
classroom teachers record their attendance for each course
section by directly entering the data into the school’s student
information system. Students who are participating in
approved work-based learning programs or who are receiving
homebound instruction are marked present for the day.

MNIC sent another letter to Pillsbury on October 31, 2018. In this letter, MNIC

acknowledged that the previous administration had manipulated MNIC’s electronic

attendance records to avoid withdrawing students who had been absent for 15 consecutive

school days. MNIC stated that it had started “to cleanup its systems and [would] be

completely in compliance [with reporting requirements] by [November 1, 2018].”

MDE’s Audit of MNIC

As a result of the September 2018 complaint, MDE selected MNIC for an audit.

The MDE audit team held an initial meeting with MNIC to gather preliminary information.

According to a summary of the meeting, MNIC administrators described MNIC’s

“attendance process” in the following manner:

According to school staff in school year 2017-2018,
electronic attendance [was] based on the manual daily sign-in
sheets. Students [were] required each day to sign in prior to
entering the building. School staff [were] present at the school
entrance to ensure students properly sign[ed] in each day.
Teachers were not responsible for taking attendance
throughout the day. The manual daily sign-in sheets were used

5

to enter attendance in the school’s student accounting system
where electronic attendance is tracked.

The audit team asked follow-up questions to determine if students could enter the building

without signing in or could sign in students other than themselves. MNIC explained that

students had to be buzzed into the building in the morning and that the entrance was staffed

by school personnel to ensure that students signed in themselves—and only

themselves---upon entry. Based on these representations, the audit team understood the

daily sign-in sheets (manual attendance records) to be the source documentation for the

electronic attendance records.

Shortly after the initial meeting, MNIC provided the audit team with the following

attendance records for FY 2018: (1) the original daily sign-in sheets, (2) the electronic

attendance records for each student reported as enrolled, and (3) various documents for

each student reported as homebound. The audit team followed up with MNIC several times

to ask clarifying questions, gather additional information, and obtain missing

documentation. The audit team spent more than two years reviewing the documentation it

had gathered during its fieldwork.

To assess the reliability of MNIC’s FY 2018 attendance records, the audit team

compared a sample of 42 students’ electronic attendance records with the manual daily

sign-in sheets to determine whether the records were consistent with each other. Based on

its review, the audit team determined that MNIC’s electronic attendance records were not

accurate, reliable, or complete. The audit team observed that: (1) students who had not

signed in were sometimes marked “present” in the electronic attendance records,

6

(2) students who had signed in were sometimes marked “not present” in the electronic

attendance records, and (3) students marked as sick or excused on the daily sign-in sheets

were sometimes marked “present” in the electronic attendance records. Based on these

findings, the audit team determined that the manual attendance records, which MDE

understood to be source documents for the electronic attendance records, did not match the

electronic attendance records and that the latter overstated attendance. Accordingly, the

audit team concluded that the electronic attendance records were not a sufficient, complete,

or reliable form of documentation for purposes of determining FY 2018 enrollment.

As a result, the audit team relied solely on MNIC’s manual attendance records to

verify MNIC’s compliance with its attendance reporting requirements. The audit team

recognized that the manual attendance records were incomplete but nevertheless

determined that they were the most reliable form of attendance data that MNIC could

provide. The audit team reviewed the manual attendance records for all 845 students that

MNIC reported as enrolled in MARSS for FY 2018.

After reviewing MNIC’s manual attendance records, the audit team found that

MNIC overreported the number of students enrolled at MNIC in FY 2018. In relevant part,

the audit team found that (1) 412 students were not present on the first day of the reported

enrollment period, (2) 427 students were not properly withdrawn after 15 consecutive

absences, (3) 70 students were reported as enrolled but did not attend school during their

reported enrollment period, (4) 4 students were improperly reported as “homebound,” 4

4
A student is considered “homebound” for state aid purposes if they are medically confined
to their home and they receive educational instruction in the home during the enrollment

7

(5) 69 students were reported with an incorrect start and/or end date, and (6) 44 students

were incorrectly reported as enrolled on October 2, 2017. 5

Based on these and other findings, the audit team determined that MNIC’s ADM

for FY 2018 should be adjusted downward from 520.98 to 383.70. Using the revised ADM

and audited enrollment numbers, the audit team concluded that MNIC was overpaid

$868,793.11 in general education revenue for FY 2018 and $487,753.76 in compensatory

education revenue for FY 2019, for a total of $1,356,546.87 in excess state aid. The audit

team recommended reducing MNIC’s future state aid by that amount.

MNIC’s Administrative Appeal of MDE’s Audit Findings

On November 23, 2021, MNIC administratively appealed several of the audit

findings and the corresponding recommended adjustments to state aid. MDE appointed an

appeal committee, which was charged with reviewing the appeal and making

recommendations to the commissioner.

In its appeal filing, MNIC raised several arguments. MNIC first argued that MDE

erred by relying solely on MNIC’s “unofficial . . . voluntary and unavoidably incomplete”

manual attendance records and by “arbitrarily” ignoring MNIC’s “official” electronic

attendance records when calculating MNIC’s ADM. MNIC also challenged MDE’s

period. With regard to four students that MNIC reported as “homebound,” the audit team
found that MNIC did not provide sufficient documentation to support their “homebound”
designation. For all four, the audit team found that the record lacked sufficient medical
documentation to support the designation. Additionally, there was no documentation of
any homebound instruction provided by MNIC teachers for any of the four students.
5
October 2, 2017 was used instead of October 1, 2017 as the enrollment date for
compensatory-education-revenue purposes because October 1, 2017 was a Sunday.

8

findings that MNIC misreported some students’ start and end dates, did not properly

withdraw students after 15 consecutive absences, reported students as enrolled even though

they had no attendance records, and reported students as homebound without providing

adequate documentation.

On April 11, 2022, the audit team responded to MNIC’s appeal filing. The audit

team explained why it determined that MNIC’s electronic attendance records were

unreliable, including that chronically absent students were all marked “present” on the

same day. The audit team also detailed its process for reviewing the manual attendance

records to determine MNIC’s enrollment for FY 2018. Accordingly, the audit team

recommended that the appeal committee affirm the audit team’s findings, with one slight

adjustment, unless MNIC provided additional documentation to demonstrate the accuracy

of its electronic records. 6

By a letter dated July 14, 2022, MNIC submitted additional information and

requested a hearing. 7 In the letter, MNIC described MDE’s audit as being conducted for a

“non-random purpose.” MNIC also provided a new estimate for its ADM for

6
After reviewing the manual attendance records again, the audit team found that one of the
students it had identified as “incorrectly reported as enrolled” was removed from the
enrollment count “in error.” The audit team revised its recommendation accordingly and
asked that the appeal committee accept its revised recommendation.
7
Although MNIC requested a hearing before the appeal committee, no statute or rule
provides for a hearing following an appeal of audit findings. See Minn. Stat. § 127A.41,
subd. 3. Rather, MDE’s internal appeal procedures provide that, upon request, the appeal
committee must “convene a meeting” between the school district or charter school, the
audit team, and the appeal committee to review the audit findings and discuss the issues on
appeal. (Emphasis added.)

9

FY 2018: 446. This estimate was based on the observations of MNIC administrators and

support staff who informally tracked “MNIC’s current enrollment based on their

interactions with students both in [MNIC school sites] and in the community.” This

estimate is smaller than MNIC’s reported ADM (520.98) but larger than the audit team’s

initial calculation of MNIC’s ADM (383.70) (which the audit team later amended to

384.82).

On July 27, 2022, the appeal committee held a meeting with MNIC and the audit

team to address MNIC’s appeal. At the meeting, MNIC admitted that its electronic

attendance records “were, at best, suspect,” but it stated that its manual attendance records

were also unreliable because dozens of students often arrived at school at the same time,

making it difficult to ensure that they all signed in properly. And MNIC maintained that

the audit findings were erroneous because they were based solely on the manual attendance

records. MNIC then explained that it had independently reviewed its attendance records,

along with several communications between its administrators, and estimated that its actual

ADM for FY 2018 was 446. MNIC suggested that its estimated ADM of 446 for FY 2018

be used for purposes of calculating state aid adjustments.

Toward the end of the meeting, the appeal committee asked MNIC if it had any

additional documentation to support its estimated ADM. On August 8, 2022, MNIC

submitted classroom attendance records reflecting “daily absences recorded by various

teachers for specific class periods.” MNIC also noted that “there was no requirement that

teachers record daily hourly attendance, so it appears some teachers never entered

10

attendance in this system, some entered it some days but not others, and others entered

attendance every day.”

After reviewing MNIC’s submission, the appeal committee asked MNIC to provide

more information, including classroom attendance records reflecting students

in attendance each day instead of students who were absent, a list of teachers who reported

classroom attendance each day along with their methods for taking attendance, and “[a]ny

other additional information MNIC would like to submit for . . . consideration.” The

appeal committee gave MNIC until August 29, 2022, to submit the requested

documentation and indicated that it would not consider any documentation submitted after

that date.

On August 29, 2022, MNIC provided the appeal committee with additional

information. With regard to teachers’ methods for taking daily attendance, MNIC

explained:

[F]or the electronic hourly attendance system, teachers marked
absent any student who was listed on the class roster but was
not present in class for the class period. Students left blank
(i.e., without an absence code) are considered present. As
another option, teachers who used written hourly attendance
record-keeping would make a list of students who were present
in class that day and these written lists were then often used to
update the daily electronic attendance system. Unfortunately,
the paper records were not retained.

MNIC also submitted an analysis of the attendance records for the same 42 students whose

electronic and manual attendance records the audit team considered. MNIC’s analysis

considered these students’ classroom attendance records as well. Based on its review of

these students’ records, MNIC concluded that “none” of MNIC’s attendance records were

11

complete, accurate, or reliable. MNIC argued that, because all of its attendance records

were unreliable, the appeal committee must ignore the audit team’s findings and instead

rely on MNIC’s estimated ADM for FY 2018.

On September 7, 2022, the audit team responded to MNIC’s August 29, 2022,

submission. The audit team maintained that the manual attendance records showed actual

attendance. The audit team acknowledged that students “may have attended additional

days” beyond those dates shown on the manual sign-in sheets but claimed that “MNIC

ha[d] not provided . . . sufficient and reliable documentation to show the students were in

attendance beyond the documented attendance in the manual sign-in sheets.” The audit

team explained that the hourly classroom attendance records were not instructive “because

not all teachers took hourly attendance and others were not consistent in taking hourly

attendance on a daily basis.” Accordingly, the audit team recommended that the appeal

committee “use the most reliable form of attendance records [that] MNIC has provided,

the manual sign-in sheets, to calculate each student’s ADM” rather than concluding that all

of MNIC’s attendance records were unreliable, as suggested by MNIC. The audit team

noted that accepting MNIC’s position “would result in a reduction of [g]eneral [e]ducation

[a]id to $0.00” because reliable attendance records are required to calculate ADM. 8

After considering the evidence in the record and the recommendation of the appeal

committee, the commissioner issued a final determination upholding the audit team’s

8
MNIC responded to the audit team’s September 7, 2022 letter, but the appeal committee
declined to consider this response because it was received after MNIC’s August 29, 2022
deadline.

12

findings with one minor adjustment recommended by the audit team. The commissioner

concluded that the record supported the audit team’s decision to use manual daily sign-in

sheets to determine attendance as “they were the only consistent tracking form for the

year.” The commissioner concluded that neither the electronic attendance records nor the

classroom attendance records were reliable due to problems with how these records were

kept, as outlined in the audit report and the audit team’s responses to MNIC’s submissions

to the appeal committee. The commissioner also determined that MNIC’s estimated ADM

was not supported by sufficient evidence and that estimation was not a legally permissible

means of calculating ADM or, by extension, state aid. And the commissioner concluded

that MNIC had not provided sufficient documentation to support its designation of four

students as “homebound.” The commissioner noted that MNIC “was given ample

opportunity to provide additional student level documentation to support its [a]ppeal,” but

failed to do so with sufficient detail.

The only change the commissioner made to the original audit findings was to adjust

the enrollment status for one student, based on the audit team’s recommendation. This

change had the effect of increasing the audited enrollment from 458 to 459, resulting in a

slight increase in the ADM calculated by the audit team for FY 2018. Using the revised

ADM, the commissioner ordered a downward adjustment of $1,350,617.75 to MNIC’s

state aid—$862,863.99 for FY 2018 general education revenue and $487,753.76 for

FY 2019 compensatory education revenue. Given the magnitude of the adjustment, the

commissioner indicated that MDE should “work with the school to determine an aid

13

adjustment schedule that will help mitigate the financial hardship that this adjustment may

cause.”

MNIC appeals by writ of certiorari.

ISSUES

I. Does the commissioner of education have the authority under Minnesota
Statutes section 127A.41, subdivision 3, to audit the records of a charter school for
purposes of verifying pupil counts and aid entitlements?

II. Is the commissioner’s authority under Minnesota Statutes section 127A.41,
subdivision 3, separate from and not limited by the commissioner’s authority under
Minnesota Statutes section 127A.42?

III. Is the commissioner’s final determination upholding the audit findings supported by
substantial evidence and not arbitrary?

ANALYSIS

Our scope of review of agency decisions is narrow. Indep. Sch. Dist.

No. 281 v. Minn. Dep’t of Educ., 743 N.W.2d 315, 321 (Minn. App. 2008). Agency

decisions enjoy a presumption of correctness, and we defer to agencies’ expertise and

special knowledge. Id. We will not reverse an agency decision unless it was made in

excess of an agency’s statutory authority, it reflects an error of law, the determinations are

arbitrary or capricious, or the findings are unsupported by the evidence. Id.; In re Qwest’s

Wholesale Serv. Quality Standards, 702 N.W.2d 246, 248, 262 (Minn. 2005) (reversing an

agency order where the order was in excess of the agency’s statutory authority). 9

9
We do not apply the contested-case appeal provisions of the Minnesota Administrative
Procedure Act (MAPA), Minn. Stat. §§ 14.63-.69 (2022), because we discern no legal or
constitutional right to a hearing before the commissioner’s decision on an audit. See Minn.
Stat. §§ 14.02, subd. 3 (defining contested case as “a proceeding before an agency in which
the legal rights, duties, or privileges of specific parties are required by law or constitutional

14

MNIC challenges the commissioner’s final decision on multiple grounds. MNIC

asserts that MDE exceeded its statutory authority by auditing MNIC under

section 127A.41, subdivision 3, because (1) as a matter of law, MDE does not have the

authority to audit the records of charter schools under that statutory provision, and

(2) under the facts of this case, MDE should have acted under section 127A.42, instead of

section 127A.41, subdivision 3. In the alternative, MNIC contends that the

commissioner’s final determination upholding the audit findings is arbitrary and not

supported by substantial evidence. MDE argues that MNIC did not raise below any

arguments regarding MDE’s authority to conduct the audit under section 127A.41,

subdivision 3, and that MNIC has therefore forfeited these arguments. MDE also asserts

that the commissioner’s final determination is not arbitrary and is supported by substantial

evidence.

We begin by considering whether MNIC’s arguments pertaining to MDE’s

authority to conduct the audit under section 127A.41, subdivision 3, are properly before

this court. “A reviewing court must generally consider only those issues that the record

shows were presented [to] and considered by the [decision-maker] in deciding the matter

before it.” Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (quotation omitted); see

also In re A.D., 883 N.W.2d 251, 261 (Minn. 2016) (discussing this forfeiture analysis in

right to be determined after an agency hearing”), .63 (authorizing certiorari appeal from a
final decision in a contested case), 127A.41, subd. 3 (directing commissioner to adopt audit
procedures and exempting those procedures from rulemaking requirements of MAPA)
(2022). But we note that the MAPA “scope of review is similar to the common law scope
of review on certiorari.” Staeheli v. City of St. Paul, 732 N.W.2d 298, 304 n.1 (Minn. App.
2007).

15

the certiorari-appeal context). But this rule is not “ironclad.” Oanes v. Allstate Ins. Co.,

617 N.W.2d 401, 403 (Minn. 2000). “[D]efects in subject matter jurisdiction can be raised

at any time and cannot be waived by the parties.” Nelson v. Schlener, 859 N.W.2d 288,

291 (Minn. 2015); see In re Hibbing Taconite Mine & Stockpile Progression,

888 N.W.2d 336, 344 (Minn. App. 2016) (citing Nelson, 859 N.W.2d at 291-92).

Whether an agency has statutory authority to make a decision is considered a

jurisdictional question. See Senior Citizens Coal. of Ne. Minn. v. Minn. Pub. Utils.

Comm’n, 355 N.W.2d 295, 302 (Minn. 1984) (“A lack of statutory authority betokens a

lack of jurisdiction.” (quotation omitted)). Therefore, the issue of whether an agency has

statutory authority—jurisdiction—to make a certain decision cannot be forfeited. Hibbing

Taconite Mine, 888 N.W.2d at 344. Accordingly, we will address in full both of MNIC’s

arguments regarding MDE’s authority to audit MNIC under section 127A.41,

subdivision 3, before turning to MNIC’s argument that the commissioner’s final

determination regarding the audit results is arbitrary and lacks evidentiary support in the

record.

I. The commissioner of education has the authority under Minnesota
Statutes section 127A.41, subdivision 3, to audit records of charter schools for
purposes of verifying pupil counts and aid entitlements.

“Administrative agencies are creatures of statute and they have only those powers

given to them by the legislature.” In re Hubbard, 778 N.W.2d 313, 318 (Minn. 2010). An

agency’s authority may be either expressly granted by legislation or implied by the

agency’s expressed powers. Id. If an agency acts outside the bounds of its statutory

authority, its action is generally void. Rowe v. Dep’t of Emp. & Econ. Dev.,

16

704 N.W.2d 191, 194 (Minn. App. 2005). “Whether an administrative agency has acted

within its statutory authority is a question of law that we review de novo.” Hubbard, 778

N.W.2d at 318.

MNIC argues that MDE and the commissioner exceeded their statutory authority by

auditing MNIC’s attendance records under section 127A.41, subdivision 3, because that

statutory provision applies only to school districts, not to charter schools. MDE counters

that charter schools are subject to the audit procedures and requirements of

section 127A.41, subdivision 3, by operation of Minn. Stat. § 124E.16, subd. 1(a) (2022).

This dispute requires us to consider not only section 127A.41, subdivision 3, the statute at

the center of this case, but also chapter 124E, which governs charter schools. The

construction of a statute presents a question of law, which we review de novo. Rowe,

704 N.W.2d at 194.

When interpreting a statute, we aim to give effect to the legislature’s intent.

Walsh v. State, 975 N.W.2d 118, 122 (Minn. 2022); see also Minn. Stat. § 645.16 (2022)

(providing considerations for determining legislative intent). To do so, we first consider

whether the language of the statute is plain—that is, subject to only one reasonable

interpretation. Walsh, 975 N.W.2d at 122. When analyzing statutory language, we read

the statute as a whole, giving effect to all of its provisions whenever possible. Am. Fam.

Ins. Grp. v. Schroedl, 616 N.W.2d 273, 277 (Minn. 2000). Our analysis may involve

consideration of surrounding statutes, particularly when the statute in question is situated

within a set of laws that form a “coherent legislative policy.” Resol. Relating to Termin’n

of Prob’y Tchr., 986 N.W.2d 251, 254 (Minn. App. 2023) (quoting State by Smart Growth

17

Minneapolis v. City of Minneapolis, 954 N.W.2d 584, 591 (Minn. 2021)). In these

instances, we “discern the plain meaning of the statute by reading it ‘in harmony’ with the

other components of the policy.” Id. (quoting Smart Growth Minneapolis, 954 N.W.2d at

591). When the statutory language in question is plain, we apply that interpretation. Walsh,

975 N.W.2d at 122. If statutory language is ambiguous—meaning susceptible to more than

one reasonable interpretation—we ascertain legislative intent by considering canons of

statutory construction. Spann v. Minneapolis City Council, 979 N.W.2d 66, 73 (Minn.

2022); see Minn. Stat. § 645.16.

We begin our statutory analysis in this case by recognizing that the legislature has

expressly provided that charter schools are “exempt from all statutes and rules applicable

to a school, school board, or school district unless a statute or rule is made specifically

applicable to a charter school or is included in this chapter.” Minn. Stat. § 124E.03, subd. 1

(emphasis added). We next consider the language of section 127A.41, subdivision 3,

which authorizes the commissioner to conduct audits to ensure that state aid entitlements

are commensurate with actual student enrollment. The relevant statutory language

provides that “[t]he commissioner shall establish procedures for conducting and shall

conduct audits of district records and files for the purpose of verifying district pupil counts,

levy limitations, and aid entitlements.” Minn. Stat. § 127A.41, subd. 3. The subdivision

further provides that the commissioner “shall order increases or decreases” in state aid to

address disparities, if any, “between pupil counts, levy limitations, or aid entitlements

determined by audit.” Id. As MNIC correctly notes, section 127A.41, subdivision 3, does

not refer to charter schools. It refers only to “districts.” Id.

18

But our inquiry does not end with section 127A.41, subdivision 3. We also must

consider whether any provision of chapter 124E makes charter schools subject to the same

audit requirements as school districts. We conclude that one section of chapter 124E does

so. Section 124E.16, subdivision 1(a), provides that “[a] charter school is subject to the

same financial audits, audit procedures, and audit requirements as a district, except as

required by this subdivision.” (Emphasis added.) By providing that a charter school is

subject to the same audit procedures and requirements as a district, the legislature

specifically subjected charter schools to section 127A.41, subdivision 3, which sets forth

the audit procedures and requirements applicable to a district for purposes of verifying

pupil counts and state aid entitlements. Taken together, these statutes plainly establish that

the commissioner has the authority to audit the records of charter schools under

section 127A.41, subdivision 3.

We are not persuaded otherwise by MNIC’s alternative reading of the relevant

language of section 124E.16, subdivision 1(a). MNIC contends that the language

subjecting charter schools “to the same financial audits, audit procedures, and audit

requirements as a district” merely dictates how charter schools must conduct their “own

annual fiscal audit[s]” and does not subject them to audits under section 127A.41,

subdivision 3. To support its argument, MNIC relies on language in subdivision 1(b) of

section 124E.16. Subdivision 1(b) requires charter schools to “submit an audit report to

the commissioner and its authorizer annually by December 31.” Minn. Stat. § 124E.16,

subd. 1(b) (2022) (emphasis added). MNIC contends that the language of subdivision 1(a)

relates solely to the audit report required by subdivision 1(b) and not to audits by the

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commissioner referred to in section 127A.41, subdivision 3. This argument is inconsistent

with the plain language of subdivision 1(a).

The relevant language of subdivision 1(a) is much broader than the reading urged

by MNIC. Again, subdivision 1(a) provides that “[a] charter school is subject to the same

financial audits, audit procedures, and audit requirements as a district.” Id., subd. 1(a)

(emphasis added). Additionally, subdivision 1(a) expressly authorizes the commissioner

to “conduct financial, program, or compliance audits” of charter schools. Id. The express

authorization for the commissioner to conduct “audits” of charter schools, together with

the use of plural nouns (audits, procedures, and requirements), reflect that subdivision 1(a)

is not limited in the manner that MNIC urges. The only logical reading of subdivision 1(a)

subjects charter schools to audits by the commissioner—including the same audits of pupil

counts and aid entitlements to which districts are subject under section 127A.41,

subdivision 3.

The conclusion that section 127A.41, subdivision 3, applies to charter schools by

operation of section 124E.16, subdivision 1(a), is reinforced by other provisions of the

Education Code—notably, those that address the distribution of state aid to charter schools

in chapter 124E. Several provisions governing the distribution of state aid to school

districts specifically apply to charter schools. For instance, MDE must distribute general

education revenue and “other aids, grants, and revenue according to chapters 120A to

129C” to each charter school “as though it were a district.” Minn. Stat. §§ 124E.20,

subd. 1(a), .24(a), (c); see Minn. Stat. § 126C.10 (2022) (detailing how general education

revenue is distributed). And, as discussed above, MDE distributes general and

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compensatory education aid to school districts based on pupil counts. See Minn.

Stat. §§ 126C.05, subds. 1, 3, 5, 8, .10, subds. 1-2e, 3.

By requiring MDE to distribute state aid to charter schools as though they are school

districts and by subjecting charter schools to the same financial audit procedures and

requirements as school districts, the legislature authorized MDE not only to disburse state

aid to charter schools but also to ensure that such disbursements are made consistent with

state law. See Minn. Stat. §§ 124E.16, subd. 1(a), .20, subd. 1(a), .21, subd. 1(a), .24(a), (c)

(2022). In other words, the statutory scheme governing the distribution and oversight of

state aid to school districts and charter schools shows that the legislature intended to pair

the commissioner’s obligation to distribute state aid to schools based on enrollment with

the concomitant authority to ensure that schools are accurately reporting their enrollment.

Thus, reading section 127A.41, subdivision 3, in harmony with section 124E.16,

subdivision 1(a), to apply to charter schools is the only reasonable interpretation, in light

of the framework for state aid set forth in the Education Code. See Minn. Stat. §§ 126C.10,

124E.16, .20, .21, .24 (2022); Schroedl, 616 N.W.2d at 277-78; Smart Growth

Minneapolis, 954 N.W.2d at 590-91. 10

10
MNIC also argues that the “law of the case” requires us to conclude that MDE does not
have the authority to audit the records of charter schools under section 127A.41,
subdivision 3. MNIC points to our order denying MNIC’s motion to stay the
commissioner’s final determination while this appeal was pending. “The ‘law of the case’
doctrine . . . provides that[,] when a court decides upon a rule of law, that decision should
continue to govern the same issues in subsequent stages in the same case.” In re Welfare
of M.D.O., 462 N.W.2d 370, 375 (Minn. 1990) (emphasis omitted) (quotation and citation
omitted). The “law of the case” doctrine does not apply “where the issue has not yet been
litigated or decided at trial or on appeal.” Id. at 376. In our decision denying MNIC’s
motion to stay, we determined, in relevant part, that a charter school is not a “school

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In sum, we hold that the plain language of section 127A.41, subdivision 3, when

read in conjunction with section 124E.16, subdivision 1(a), expressly grants the

commissioner authority to audit the records of charter schools in the same manner as school

districts for purposes of verifying pupil counts and state aid entitlements. See Walsh,

975 N.W.2d at 122; Hubbard, 778 N.W.2d at 320. Accordingly, we conclude that the

commissioner and MDE did not exceed their statutory authority by auditing MNIC’s

attendance records and ordering adjustments to state aid based on the audit results.

II. The authority of the commissioner under Minnesota Statutes section 127A.41,
subdivision 3, is separate from and not limited by the commissioner’s authority
under Minnesota Statutes section 127A.42.

MNIC also contends that MDE exceeded its statutory authority by acting under the

wrong statute. MNIC characterizes MDE’s audit as a “criminal investigation” and asserts

that such “investigations” must be conducted under section 127A.42, which applies when

the commissioner has reason to believe that a violation of law “is occurring.” Minn.

Stat. § 127A.42, subd. 4. MNIC also maintains that, by proceeding under section 127A.41,

subdivision 3, rather than section 127A.42, MDE denied MNIC the additional “due process

protections” afforded by section 127A.42. MNIC’s arguments are unavailing for several

reasons.

First, MNIC’s assertion that MDE conducted a “criminal investigation” is not

supported by the record. The record shows that MDE conducted an audit to verify MNIC’s

district” exempt from the requirement of posting security to obtain a stay pending appeal
under Minn. Stat. § 574.18 (2022). In so doing, we interpreted section 574.18—we did not
interpret section 127A.41, subdivision 3. Thus, MNIC’s assertion that our earlier order
somehow constrains our interpretation of section 127A.41, subdivision 3, is not persuasive.

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pupil counts and aid entitlements under section 127A.41, subdivision 3, rather than an

investigation into potential fraud, notwithstanding that MDE initiated the audit after a

citizen complained about MNIC’s recordkeeping practices. Moreover, as MDE correctly

notes, the Education Code does not authorize MDE to conduct criminal investigations or

prosecutions. See Minn. Stat. §§ 120A.01-129C.27 (2022). By contrast, as discussed

above, the commissioner and MDE do have express statutory authority to audit the records

of charter schools under section 127A.41, subdivision 3. Thus, MDE acted within its

express statutory authority when it initiated the audit of MNIC based on a citizen

complaint.

Second, MDE was not required to act under section 127A.42 rather than

section 127A.41, subdivision 3. The plain language and purposes of these two statutes

compel this conclusion. Section 127A.41 authorizes the commissioner to “supervise

distribution of state aids and grants in accordance with law.” Minn. Stat. § 127A.41,

subd. 1. As discussed above, part of the supervisory role involves establishing audit

procedures and conducting audits pursuant to those procedures to ensure that state aid

entitlements match actual enrollment at districts and charter schools. Id., subd. 3. The

commissioner selects districts to audit based on several criteria, including whether a citizen

has requested an audit by submitting a complaint to the MDE. Nothing in section 127A.41,

subdivision 3, precludes an audit when there were allegations of fraudulent recordkeeping

or manipulation of attendance records, as there were in this case. See id., subds. 1-10. And,

if an audit by MDE reveals disparities in a district’s “pupil counts, levy limitations, or aid

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entitlements,” the commissioner must “order increases or decreases accordingly.” Id.,

subd. 3.

By contrast, section 127A.42 authorizes the commissioner to address certain

violations of law by reducing state aid to a district if a violation is not corrected within a

specified period of time. Minn. Stat. § 127A.42, subds. 2, 4, 6. Those violations

include: employing an unlicensed teacher, failing to comply with a mandatory rule of

general application, maintaining an unauthorized rental contract, violating the Minnesota

Constitution or antidiscrimination laws, failing to educate a resident student, or using funds

contrary to their statutory purpose. Id., subd. 2. Section 127A.42 is triggered when “it

appears that a violation [of law] is occurring in a district.” Id., subd. 4 (emphasis added).

At that point, the commissioner must notify the school board of the district. Id. The school

board has a right to dispute the alleged violation during a hearing. Id., subd. 5. If the

violation is corrected within the appropriate timeframe, the commissioner will not reduce

the state aid. Id., subd. 6. If the violation is not corrected, the commissioner “may reduce

or withhold the district’s state aid.” Id., subds. 2, 6. These provisions of section 127A.42

apply to charter schools. Minn. Stat. § 124E.25, subd. 3. More importantly for purposes

of this appeal, there is no language in section 127A.42 that limits the commissioner’s audit

authority under section 127A.41, subdivision 3, in any way. See Minn. Stat. § 127A.42.

Third, MNIC’s preference for the process outlined in section 127A.42 does not

support the conclusion that MDE lacked the authority to proceed under section 127A.41,

subdivision 3, nor does it suggest that MDE violated MNIC’s due-process rights by doing

so. Because MDE proceeded under section 127A.41, subdivision 3, rather than

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section 127A.42, MNIC was not statutorily entitled to the procedures afforded under

section 127A.42. And MNIC has not argued that the process it received under

section 127A.41—notice, an opportunity to be heard, and the right to appeal—fail to satisfy

requirements of due process. Thus, MNIC’s due-process arguments are unavailing.

Finally, it is not clear that MDE could have acted under section 127A.42 based on

the record in this case. While it is true that section 127A.42 requires the commissioner to

notify a school district or charter school of certain violations of law within the district or

charter school, this notice requirement applies only “when it appears that a violation is

occurring.” Id., subd. 4. Here, MDE did not find that MNIC’s attendance recordkeeping

practices constituted a “violation” within the meaning of section 127A.42. Moreover,

although MDE audited MNIC’s past attendance recordkeeping practices, MDE expressed

no opinion as to whether those practices were ongoing. Because it is not clear that there

was an ongoing violation within the scope of section 127A.42, we are not persuaded by

MNIC’s argument that MDE was required to proceed under that section.

In sum, MDE did not exceed its statutory authority by auditing MNIC under

section 127A.41, subdivision 3, instead of acting under section 127A.42.

III. The commissioner’s final determination upholding the audit findings is not
arbitrary and is supported by substantial evidence.

Lastly, MNIC argues that the commissioner’s final determination upholding the

audit findings is arbitrary and not supported by substantial evidence. We may reverse a

quasi-judicial agency decision if it is arbitrary and capricious. See Indep. Sch. Dist.

No. 281, 743 N.W.2d at 327. An agency decision is arbitrary and capricious if there is no

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“rational connection between the facts found and the choice made.” In re Excess Surplus

Status of Blue Cross & Blue Shield of Minn., 624 N.W.2d 264, 277 (Minn. 2001) (quotation

omitted). Stated differently, an agency decision is arbitrary and capricious if it reflects “the

agency’s will and not its judgment.” In re Denial of Contested Case Hearing Requests &

Issuance of NPDES/SDS Permit No. MN0071013, 993 N.W.2d 627, 646 (Minn. 2023)

(quotation omitted). “In applying the arbitrary and capricious standard, we consider

whether a combination of danger signals suggests that the agency has not taken a hard look

at the salient problems and has not genuinely engaged in reasoned decision-making.” Id.

at 646-47 (quotations omitted).

We may also reverse a quasi-judicial agency decision if it is not supported by

substantial evidence. In re Application of N. Metro Harness, Inc., 711 N.W.2d 129, 134,

137 (Minn. App. 2006), rev. denied (Minn. June 20, 2006). Substantial evidence is

“(1) such relevant evidence as a reasonable mind might accept as adequate to support a

conclusion; (2) more than a scintilla of evidence; (3) more than some evidence; (4) more

than any evidence; or (5) the evidence considered in its entirety.” Indep. Sch. Dist.

No. 281, 743 N.W.2d at 327 (quotation omitted). When applying the substantial-evidence

test, we evaluate the evidence relied on by the agency in view of the record as a whole. Id.

As long as the agency engaged in reasoned decision-making, we will affirm, even if we

may have reached a different conclusion had we been the fact-finder. Id. The relator has

the burden of proving that the challenged agency findings are not supported by substantial

evidence. N. Metro Harness, 711 N.W.2d at 137.

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MNIC raises three arguments to support its contention that the commissioner’s final

determination upholding the audit findings is arbitrary and is not supported by substantial

evidence. We consider each argument in turn.

MNIC’s “Testimony” Regarding Its Attendance Records

MNIC first contends that the commissioner “arbitrarily ignored” MNIC’s

“testimony” about its attendance records and thereby violated “general audit procedures.”

Specifically, MNIC contends that the commissioner ignored the statements of a MNIC

administrator that called into question the audit team’s reliance on the manual attendance

records for purposes of calculating MNIC’s FY 2018 enrollment and ADM.

This argument is unavailing. As a preliminary matter, the “testimony” to which

MNIC refers consists of statements made by a MNIC administrator during the

July 27, 2022 meeting attended by the audit team, the appeal committee, MNIC

administrators, and MNIC’s counsel. The transcript of this meeting is part of the

administrative appeal record that the commissioner considered, and MNIC does not

provide any support for its assertion that the commissioner did not consider it when

rendering a final decision. Moreover, in the final decision, the commissioner provided

detailed reasons for upholding the audit finding that the manual attendance records are the

most reliable records available from MNIC for determining attendance for FY 2018,

notwithstanding the “testimony” by MNIC’s administrator. Accordingly, MNIC’s

assertion that the commissioner arbitrarily ignored MNIC’s “testimony” is unpersuasive.

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MNIC’s Manual Attendance Records

MNIC relatedly argues that the commissioner’s final decision is not supported by

substantial evidence because MNIC’s manual attendance records for FY 2018 are not

“accurate, complete, or reliable.” MNIC further asserts that none of its attendance records

for FY 2018 are reliable, given its “systemic issues with attendance reporting” that year,

and that the commissioner therefore should have accepted MNIC’s estimated ADM for

FY 2018. We are not persuaded.

The audit team explained that the FY 2018 manual attendance records were a

reliable source of student attendance data for MNIC because they were “source documents”

for the electronic records and were generated through an in-person sign-in process that was

overseen by MNIC staff. This conclusion is supported by the record, which reflects that

MNIC told the audit team early in the process that MNIC’s manual daily sign-in sheets

were source documents for MNIC’s electronic records. While MNIC later maintained that

the manual attendance records were not the sole source for MNIC’s electronic attendance

records, the audit team’s review of the documents provided by MNIC persuaded the audit

team and the commissioner that the manual attendance records were the most reliable.

The audit team reviewed thousands of pages of manual daily sign-in sheets,

classroom attendance records, and electronic attendance records, and determined that the

manual attendance records were the only reliable source of attendance data due to

discrepancies in both the electronic and classroom attendance records. For example, in the

electronic records, the audit team found several instances where students who were

consistently marked absent for a number of days were then marked present on the same

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day (presumably to prevent these students from being withdrawn). With regard to the

hourly classroom attendance records, not all MNIC teachers maintained those records and

the teachers who did were not always consistent in entering daily attendance. Moreover,

the hourly classroom attendance records generally reflected only students marked absent;

they did not indicate which students were actually “present.” Finally, during the appeal

process, MNIC did not provide any other documentation from which actual attendance for

FY 2018 could be established despite being given multiple opportunities to do so. Thus,

the commissioner’s decision to accept the audit team’s use of manual attendance records

to calculate MNIC’s enrollment and ADM for FY 2018 is supported by substantial

evidence.

Moreover, as MDE correctly points out, MNIC’s suggestion that the commissioner

should have accepted MNIC’s estimated ADM in place of the audited ADM is contrary to

law. As previously discussed, a charter school’s annual general education revenue depends

on the school’s ADM. Minn. Stat. §§ 124E.20, subd. 1, 126C.05, subds. 1, 5, 8(a),

126C.10. ADM depends on how many days each student is enrolled at the school during

the school year. Minn. Stat. § 126C.05, subd. 8(a); see Minn. Stat. § 124E.20, subd. 1

(making section 126C.10 applicable to charter schools). And enrollment for each student

is “counted from the date of entry until withdrawal.” Minn. Stat. § 126C.05, subd. 8(a).

Therefore, by statute, ADM is based on each student’s actual attendance as reflected in

individual student records. See id.; Minn. Stat. § 127A.41, subd. 5 (requiring “a record of

each pupil’s daily attendance”). But MNIC’s estimate is based on the anecdotal

observations of MNIC administrators and staff, not on actual attendance records. MNIC’s

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reliance on its estimated ADM for FY 2018 is therefore misplaced, and substantial

evidence in the record supports the commissioner’s decision to uphold the audit finding

that the manual attendance records are the most reliable records for purposes of calculating

enrollment and ADM during the relevant time period.

Documentation for Reportedly Homebound Students

Lastly, MNIC contends that the commissioner’s final decision regarding the audit

findings on “homebound” students is arbitrary and is not supported by substantial evidence

because the audit team improperly relied on and misinterpreted MDE’s MARSS Manual

when it determined that MNIC did not provide adequate documentation for four reportedly

homebound students. Again, we disagree.

The commissioner’s final determination regarding the “homebound” students is

supported by substantial evidence. According to the MARSS Manual, a charter school

seeking to claim general education revenue based on homebound instruction must provide

adequate documentation that such instruction is necessary and is being provided on a

regular basis. For audit purposes, the school must provide for each homebound

student: (1) written verification from a medical authority confirming the student’s

confinement to the home and (2) records that show the dates of each homebound visit and

the number of hours of instruction provided during each visit. The record contains no

documentation from MNIC of homebound instruction for any of the four students. The

lack of evidence of any homebound instruction is sufficient to support the commissioner’s

conclusion that MNIC did not provide adequate documentation on the four students

involved. We therefore conclude that substantial evidence supports the commissioner’s

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final determination upholding the audit finding that MNIC lacked adequate documentation

to support its classification of four students as “homebound” for enrollment purposes.

We are not persuaded otherwise by MNIC’s assertion that the audit team arbitrarily

relied on the “MARSS Data Elements” section of the MARSS Manual. The MARSS

Manual is a collection of reporting procedures adopted by MDE pursuant to the

commissioner’s express statutory authority to “adopt internal procedures for administration

and monitoring of [school] aids and grants” and for conducting audits in that context.

Minn. Stat. § 127A.41, subds. 1, 3. Because the “MARSS Data Elements” section of the

MARSS Manual was developed pursuant to the commissioner’s express statutory authority

to adopt internal auditing procedures, we discern no error in either the audit team’s reliance

on the MARSS Data Elements or the commissioner’s final determination upholding the

audit findings. MNIC does not cite, and we are not aware of, any authority that would lead

us to a contrary conclusion.

In sum, we conclude that the commissioner’s final determination on MNIC’s appeal

of the audit findings is not arbitrary or unsupported by substantial evidence.

DECISION

Minnesota Statutes section 127A.41, subdivision 3, when read in conjunction with

Minnesota Statutes section 124E.16, subdivision 1(a), authorizes the commissioner of

education to audit the records of a charter school for the purpose of verifying pupil counts

and state aid entitlements and to order adjustments in state aid based on the audit results.

The authority of the commissioner under section 127A.41, subdivision 3, to conduct audits

and to order increases and decreases to state aid entitlements accordingly is separate from

31

and not limited by the commissioner’s authority to reduce or withhold state aid for

violations of law under Minnesota Statutes section 127A.42. Because the commissioner

had authority under section 127A.41, subdivision 3, to audit the attendance records of

MNIC and to decrease MNIC’s state aid entitlement accordingly, and because the

commissioner’s final determination upholding the audit team’s findings and

recommendations is not arbitrary and is supported by substantial evidence, we affirm.

Affirmed.

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