A chain of schools in California serving at-risk pupils “over claimed” more than $57m (pound;30m) in public funds, “reaping millions in profit”, according to an audit which has been vigorously disputed by the schools’

operators.

The investigation into the Options for Youth and Opportunities for Learning Charter Schools, run by a husband and wife, “also revealed excessive compensation for the founders... mixing of business(es) that are privately owned with... schools that are controlled by the same individuals, and instances of nepotism”, California’s education department said in a statement earlier this month.

It found that Joan and John Hall established businesses that profited from supplying their 48-site network with some 15,000 students. “The Hall entities are interconnected by the Hall family members, several of the same corporate officers, directors and staff; and the goods and services they sell to and purchase from one another,” it said.

Five schools donated $10.8m to a charity intended to benefit “California’s at-risk youth... and students failed by the traditional educational model”, run by the couple’s daughter, part of which went towards a venture to establish another school in Chicago,” it said. “We don’t begrudge legitimate uses of money, (but a) personal, private charity is not one of them,” said Hilary McLean, press secretary to Jack O’Connell, California education chief.

The schools also “overstated” the number of qualified teachers working for them, student-staff ratios and student attendance, the audit said.

The Halls received combined annual salaries of more than $600,000 between 2003 and 2005, had the leases on their sports-utility vehicles paid and thousands of dollars were spent on a staff outing to Disneyland, it said.

Mr O’Connell said the case had been referred to California’s Attorney General.

But Stevan Allen, a spokesman for the schools, said the findings were riddled with “factual inaccuracies”, “erroneous assumptions” and “improper conclusions”. He said the firm had previously shared details about its operations with officials and was a victim of “insufficient guidance”. The schools represent the last hope for students who might “otherwise be on the streets”, he said.

There are 3,600 charter schools in the US. They are publicly funded but run independently. They have been given more flexibility than other schools so that they can develop new approaches with pupils for whom conventional methods have not worked. But some operators have used independence for personal gain. Ms McLean said officials were still trying to recoup $23m from the operators of the 66-school California Charter Academy, which closed in 2004 amid allegations of profiteering.