An ESA audit is a review of your Education Savings Account to verify funds are being used appropriately for approved educational expenses. Audits can be random or triggered by flagged transactions.
What is an ESA Audit?
An ESA audit is a compliance review of your Education Savings Account to ensure funds are being used for approved educational expenses. State education departments or contracted third parties (like ClassWallet) conduct these reviews to maintain program integrity. Audits can occur randomly as part of standard oversight, or they can be triggered by specific transactions that raise questions. The good news? Actual fraud rates are extremely low - Arizona's most recent audit found an improper payment rate of just 0.001%. Most parents who maintain good documentation have nothing to worry about.
Key Takeaways
- Most audits are random annual reviews, not investigations of suspected wrongdoing
- All ESA purchases are subject to risk-based review, even if initially auto-approved
- Proper documentation is your best protection - receipts, invoices, and credentials
- You typically have 10 business days to respond to questions about flagged expenses
- Fraud is rare; most compliance issues are innocent documentation mistakes
What Triggers an Audit
Random audits are part of standard program oversight - states conduct annual reviews of a percentage of accounts. Beyond random selection, specific purchases get flagged for additional review based on: previous account holder issues, high-risk expense categories (tutoring, supplementary materials), purchases from unapproved vendors, missing or incomplete documentation, and expenses that seem unusually expensive. In Arizona, transactions under $2,000 may be auto-fulfilled but remain subject to later audit review. Auto-approval doesn't mean the expense won't be questioned later.
What Auditors Look For
Reviewers examine two main areas: documentation quality and expense eligibility. For documentation, they want itemized receipts showing student name, vendor information, service dates, descriptions, and costs. Tutor and therapist payments require credential verification (diplomas, certifications). For eligibility, they verify expenses fall within approved categories and represent reasonable costs for educational purposes. Expenses previously approved for similar circumstances carry less scrutiny than novel purchases.
Consequences of Audit Issues
How to Stay Audit-Ready
Documentation is everything. Save all receipts immediately after purchase - photograph them if they're thermal paper that fades. Upload receipts promptly to ClassWallet; don't wait until quarter-end. Keep both digital and physical copies organized by category and quarter. For tutoring and therapy services, maintain copies of provider credentials. When purchasing something that might raise questions, submit a pre-authorization form before buying. If you're ever uncertain whether an expense qualifies, contact your state's ESA office - it's better to ask than to face repayment requirements.
The Bottom Line
ESA audits exist to protect program integrity, but they shouldn't cause anxiety for families using funds appropriately. The overwhelming majority of ESA account holders comply successfully. Focus on three fundamentals: buy from approved vendors when possible, keep detailed documentation of every purchase, and respond promptly to any questions from your ESA office. Good record-keeping makes audits straightforward. If you do make an innocent mistake, address it quickly and cooperatively - most issues resolve with documentation or repayment, not program termination.
