Last summer, as two large Indiana virtual charter schools collapsed under the weight of fraud allegations, a small new online program made its debut.
Indian Creek Online Academy was launched by a 2,000-student district south of Indianapolis experimenting with new ways of reaching students.
Officials with the Nineveh-Hensley-Jackson district said they wanted to avoid the mistakes of the troubled virtual schools. But they also picked an outside management company whose leader had a history with those very institutions, Indiana Virtual School and Indiana Virtual Pathways Academy.
Businessman Gar Hoover, the head of Indian Creek Online Academy’s management company, had previously served as chief operating officer for AlphaCom, a company accused in the $86 million alleged enrollment fraud and self-dealing scheme at the two virtual charter schools.
A state auditors’ investigation released earlier this month alleges that Hoover, who also served as a board member for Indiana Virtual School, signed off on a request for more than $96,000 in state funds based on inflated enrollment numbers. He’s listed as one of the parties personally responsible for repaying that amount, plus the cost of the auditors’ investigation.
A federal investigation has been launched into the fraud allegations. It is unclear whether Hoover’s role is included in the investigation.
Nineveh-Hensley-Jackson Superintendent Tim Edsell said he asked about Hoover’s history at Indiana Virtual School before the district contracted with his new company, American Online Education Services.
But Edsell wasn’t aware that Hoover was named in the state auditors’ investigation until contacted by Chalkbeat. After Chalkbeat sent him the state’s report, Edsell said he opened an internal investigation with the district’s legal counsel into Hoover’s connections to the virtual charter schools.
“I do have concerns,” Edsell said. “I want to be very thorough and comprehensive and accurate in our review.”
Edsell also didn’t know that Hoover had brought in a subcontractor with several other former employees from the web of companies paid millions in public dollars to operate virtual schools that served far fewer students than they received money for.
Operators of two Indiana charter schools spent nearly $86 million in tax dollars at businesses in which they had ties. The money came from state tuition support for students who, in some cases, were never enrolled in the schools.
This is the school choice Indiana lawmakers celebrate – a breathtaking violation of the public trust.
A special report by the State Board of Accounts was released last week, based on an investigation of Indiana Virtual School and Indiana Virtual Pathways Academy. Chalkbeat, an online education news service, first reported in 2017 that one of the online schools collected nearly $10 million in 2015-16 while graduating only 5.7% of its seniors – the lowest graduation rate in the state. Chalkbeat revealed a web of business interests between school founder Thomas Stoughton and AlphaCom, a for-profit company he operated while charging the school millions for management services and rent for offices in a suburban Indianapolis office park.
State auditors found public funds misappropriated through “malfeasance, misfeasance, and/or nonfeasance.” The complexity of the scam required a diagram to lay out ties among Stoughton, other charter officials and 14 private companies that shared in ill-gotten school funds – almost $69 million.
Chalkbeat’s reporting found discrepancies in enrollment now confirmed by the state. In more than 4,700 examples, children reported as enrolled completed no courses. Another 3,811 were flagged with just one or more course completions. The ghost enrollees included individuals who died or moved out of state, students withdrawn for lack of participation and some who did nothing beyond requesting information on the school. Counted as enrollees, they drew thousands of dollars each in state support that was, in turn, funneled to connected vendors. In the 2017-18 school year alone, the audit identified $15.5 million in overpaid tuition support.
Asked about the State Board of Account’s report, House Speaker Brian Bosma defended the virtual school program and pointed to Daleville Community Schools, the tiny public school district that granted its name as authorizer of the charter schools, and the Department of Education, overseen by Indiana schools chief Jennifer McCormick. The Republican state superintendent, whose office was eliminated by the legislature effective next year, has been outspoken in calling for greater accountability for schools of choice.
Blaming the Department of Education for the abuses of charter school operators is like blaming the BMV for the actions of a drunk driver. Responsibility for lax regulations and oversight for both charter schools and voucher schools falls squarely on Bosma and the GOP supermajority. In cozying up to the deep-pocketed school-choice community, they ignored glaring examples of corruption here and elsewhere. It was almost 11 years ago when The Journal Gazette first reported on the suspicious real estate deals surrounding two Imagine Inc. charter schools in Fort Wayne – schools that eventually shut down with $3.6 million in outstanding state loans.
Charter school scandals are so common that the Network for Public Education began collecting them on a website and tagging them on Twitter: #AnotherDayAnotherCharterScandal.
“There is a crisis of charter corruption in the United States and sadly the powerful charter lobby stops every attempt to enact reform,” said Carol Burris, executive director of the organization. “In 2019 alone the Network for Public Education identified four major virtual charter scandals, including Indiana’s two schools. A California virtual scandal cost that state’s taxpayers over $50 million. Virtual charter schools have a pattern of ‘cooking the books’ when it comes to attendance and enrollment, and have the worst outcomes when it comes to student achievement.”
Oklahoma has just experienced a fraud involving an online charter school called EPIC, which was accused of collecting money for ghost students and billing for excessive administrative overhead. It’s amazing how many of the big scandals in charter land involve the highly profitable online charters.
Now parents in Oklahoma are outraged that a new virtual charter obtained the names and addresses of their children. The charter is aligned to the Gulen movement.
State Superintendent Joy Hofmeister has promised get to the bottom of this breach of student privacy.
There is not much to admire in Oklahoma’s penurious funding of its public schools. But there is one admirable law on the books. Schools are not permitted to spend excessive amounts on administrative overhead. And when they do, they are penalized.
Epic One on One virtual charter school has been penalized more than $530,000 for exceeding the state limit on administrative spending, a limit imposed by state statute meant to keep the bulk of state education funding in the classroom.
Epic’s superintendent, Bart Banfield, was notified of the penalty last month, according to an email obtained by The Frontier through an open records request.
The total penalty of $530,527.20 is based on Epic exceeding the allowable limits on administrative expenditures by 5.58 percent.
School districts with more than 1,500 students are not allowed to spend more than 5 percent of expenditures on administrative costs, which includes salaries for superintendent, assistant superintendent or any employee who has responsibility for administrative functions of a school district.
The amount will be deducted from Epic’s next state aid payment, according to the email to Banfield.
Thirteen school districts exceeded administration spending limits in Fiscal Year 2019, according to a report from the State Department of Education.
The penalties for the 12 other districts averaged $19,468, with penalties on school districts ranging from $27.39 to $39,514.
Epic’s penalty of more than half a million dollars is 10 times more than any penalty issued over the past three years, according to documents obtained by The Frontier.
EPIC’s CEO said it was a coding error. The state superintendent Joy Hofmeister said there was no error and the fine would be collected.
We’ve known something fishy was going on with virtual charter schools since 2017, when a Chalkbeat Indiana investigation exposed shady business practices and lousy test scores and graduation rates at Indiana Virtual School and its sister school, Indiana Virtual Pathways Academy.
A blockbuster report this week from the State Board of Accounts shows just how bad it was – and it was worse than we’d imagined. The report charged that the schools overbilled the state by $68 million by vastly inflating the number of students who were enrolled in and attending classes online.
It also found schools made $85.7 million in questionable payments to vendors in which school officials or family members had an interest. Much of the taxpayer money that the schools received, the report shows, went to a network of for-profit businesses tied to school founder Thomas Stoughton and his associates.
The state investigatory report suggests officials at the virtual schools were “focused on maximizing profits and revenues,” not on serving students.
How did they get away with it? For one thing, they appealed to the dominant ideology in the Republican-controlled state government, which holds that choice and competition in the educational marketplace are an inherent good. For another, they played the game of politics.
Businesses that were associated with and benefited from Indiana Virtual School and Indiana Virtual Pathways Academy gave over $140,000 since 2016 to the campaigns of
Republican legislators and Gov. Eric Holcomb. The schools also paid over $300,000 to a high-end lobbying firm, according to the report.
That’s in addition to similar amounts paid by other online education providers – e.g., K-12 Inc. and, for a time, Connections Academies – to promote an environment conducive to virtual schools.
Political connections
Indiana Virtual School and its initial operator, the Indiana nonprofit Business Consulting Inc., worked with politicians from the get-go. In July 2011, just a month after the school got its first charter, its board approved a contract with the consulting firm of state Sen. Travis Holdman, R-Markle.
Holdman said in a statement that the schools paid him a monthly retainer from 2011 to mid-2019 to be “available for general business consulting on legal and personnel matters, contract interpretation, the relationship with the school’s authorizing entity and strategic planning.” He said he had no day-to-day involvement with the schools and terminated the
contract once news media reported “alleged malfeasance” by school officials.
Early board members of Indiana Virtual School included Sue Richardson, a former member of the State Board of Education, and Linda Chezem, an influential retired state appeals court judge.
Daleville Community Schools, a small, rural school district near Muncie, approved the charters for Indiana Virtual School and Indiana Virtual Pathways Academy and was supposed to monitor their performance. That’s an unusual situation. Most charter schools in Indiana are authorized by Ball State University, the mayor of Indianapolis or the Indiana Charter School Board.
But Daleville, by serving as authorizer, was able to collect 3% of all money the two virtual schools received from the state. As enrollment ballooned, so did Daleville’s revenues. In a sense, the authorizer was another “related party” with a financial stake in the schools’ growth.
It gets worse. Money, politics, education. Why not steal from the children? Why not sacrifice their futures to make a profit?
Do taxpayers in Indiana care? How do they feel about their tax money going into the pockets of the entrepreneurs?
Why did the authorizer ignore the graft? Could it be that it was getting paid a commission for each student supposedly enrolled in these “schools”? Enough fraud to pay off almost everyone.
Early estimates of just how much money two online schools stole from the state of Indiana were wrong, according to a report filed Wednesday by the Indiana State Board of Accounts.
A special investigation into malfeasance by Indiana Virtual School and Indiana Virtual Pathways Academy found that the schools inappropriately received more than $68.7 million collectively.
Last summer, state investigators revealed that the charter schools had inflated their enrollment to defraud the state — by enrolling students who’d simply requested information on the schools’ website, re-enrolling students after they’d left the schools or, in one case, by keeping a deceased student on their books more than a year after their death.
The state funds public schools — which include virtual charter schools — based on the number of students enrolled each year. At the time, investigators estimated overpayments to be around $40 million.
The new report details widespread fraud, misuse of state funds and a severe lack of oversight by school officials and the schools’ charter authorizer, Daleville Community Schools.
State regulators mouth complaints about the low quality of online charters yet they are renewed again and again. As Harris points out, even school choice advocates (except for Betsy DeVos) believe that the online charters should be regulated, yet they continue to operate unimpeded.
Harris writes:
SAN DIEGO — By the time authorities brought charges against the owners of A3 Education earlier this year, the online charter school company had bilked California taxpayers out of $50 million, according to indictments handed up in May.
The state would have lost another $200 million if authorities had not detected the scheme to inflate enrollment in the virtual charter school using names gleaned from youth sports league rosters, said San Diego County District Attorney Summer Stephan. League owners are alleged to have received kickbacks for providing names, according to the indictments.
A3 Education, a nonprofit management company that enrolled tens of thousands of California students at its peak, had sought out small school districts to authorize its online schools, knowing the districts would provide little oversight, authorities said.
The California case is the latest in a string of allegations of fraud and educational malpractice against virtual charter schools. These have included, among others, multimillion dollar scams in Ohio, Oklahoma and Indiana, and academic or financial problems that shuttered online charter schools in Georgia, Nevada and South Carolina.
California last year banned for-profit charter schools and this year adopted a two-year moratorium on new virtual charter schools. Neither law, however, would have affected A3 Education or its schools.
The Arizona Republic visited seven states to investigate the successes and challenges surrounding charter schools — the publicly funded but privately operated schools that many believed would revolutionize American public education through competition and innovation…
In Arizona, which has the most charter school students out of the states, no online charter school meets the state Charter Board’s academic standards. And Arizona’s largest virtual charter school, Primavera Online, earned the board’s lowest academic ranking and posted declining graduation rates for the last decade. That hasn’t stopped Primavera founder and CEO Damian Creamer from paying himself a combined $10.1 million in 2017 and 2018.
Primavera, which has a total enrollment of 22,000, reported a $10 million profit this year, while spending $6.9 million on teacher salaries.
“These guys are definitely in it for the profit,” said Macke Raymond, director of the nonpartisan Center for Research on Education Outcomes, or CREDO, at Stanford University.
Negative headlines have, however, prompted prominent charter school leaders to call on regulators to clamp down on virtual charters, and for the industry to cut ties with the schools.
Todd Ziebarth, a senior vice president of the National Alliance for Public Charter Schools, said poor academic performance at virtual charter schools gives ammunition to teachers unions and others who oppose school choice, hurting high-quality charter schools and the broader school-choice movement.
“They make up a small percentage of charter schools, but a huge percentage of negative publicity,” said Tom Torkelson, chief executive of Texas-based IDEA Public Schools, one of the nation’s largest charter school operators. “They add no value. I would never send my kids to one.”
Torkelson argues that it’s time for online charter schools to go out of business.
But few states have enacted reforms, experts note, because when such proposals arise, virtual charter operators — flush with cash — have flooded key lawmakers with campaign contributions.
This proves that when a big charter corporation buys legislators, they stay bought.
Despite poor academic performance, virtual charter schools likely are here to stay because parents want that choice, said Raymond, the CREDO director.
However, CREDO notes in a study, low-performing online charter schools are not keeping their end of the educational “grand bargain” struck about 25 years ago, during the early charter movement.
That deal gave charter operators the freedom to teach kids in innovative ways with minimal red tape. By being allowed to run a school like a business, operators promised they would allow regulators to shut down poor performing schools.
To fix the problems, Stanford researchers concluded that charter school authorizers “must step up their responsibilities and demand online charter providers improve outcomes for students.” And, states should examine the progress of existing online programs before approving any expansions.
Raymond said she still believes in a “cost-efficient and effective education through online” schools but the system “doesn’t seem to deliver on that.”
University of Colorado researchers agreed that states should slow or halt the growth of virtual and blended schools until their performance has improved, and student-to-teacher ratios are lowered.
But Miron, the Western Michigan professor, said changes are unlikely.
Even when prosecutors, like the San Diego County district attorney, crack down on one virtual school another will quickly pop up because the business is so lucrative, he said.
“Even if a charter board fires them, it doesn’t affect them. They are not losing a building,” Miron said. “They don’t get punished for risky behavior. It’s a very different model for brick-and-mortar schools.”
Bill Phillis is a public education activist in Ohio. He retired as Deputy State Superintendent of Education in Ohio several years ago.
He writes:
December 1, Columbus Dispatch Capitol Insider: Remember ECOT?
As the article indicates, most people have forgotten the ECOT debacle. The ECOT Man, William Lager, siphoned one billion dollars from school district budgets for a business plan that was designed to collect funds for tens of thousands of students that were not being served and tens of thousands of students that were underserved. Lager’s campaign funds-driven relationship with hundreds of state and federal officials over a couple decades allowed him to steal public money in public view. When citizens began asking questions about the thievery, some public officials scrambled to give the appearance of holding Lager accountable.
School districts will never receive back the millions and millions Lager illegally took from them.
Remember ECOT?
Most Ohioans have probably forgotten that the state is still trying to pry money from leaders of the now-defunct ECOT, the online charter school that shut down almost three years ago.
Even though the state started pursuing the money in 2018, a trial might not happen until 2021 under a recent timetable developed by lawyers for the state and those associated with the former Electronic Classroom of Tomorrow.
The attorney general is seeking to recover millions from ECOT founder William Lager; his companies, Altair Management and IQ Innovations; and several former ECOT officials. The lawsuit says Lager had a fiduciary duty to ECOT that was violated by the contracts signed to funnel money to his companies.
The delay is needed because Lager and his companies dumped 50,000 pages of new documents on the state in mid-October, on top of 50,000 already provided, a joint court filing from both sides said.
“The state needs time to review this latest, massive document production,” the filing in Franklin County Common Pleas Court said.
The modified schedule calls for a status conference Sept. 15, 2020, with a trial to be scheduled afterward.
Bill Phillis, longtime head of the Ohio Coalition for Equity & Adequacy of School Funding, remarked, “Although Lager amassed a lot of wealth on the backs of schoolchildren, it is doubtful that much, if any, will be recovered.”
Peter Greene writes here about the possibility that legislators might attempt to limit the damage done by the cyber charter industry, which is protected by armor of cash and campaign contributions.
Numerous studies, including one by the charter-friendly CREDO of Stanford, have found that students in cyber charters don’t learn much. Some studies have shown that cyber charters don’t learn anything.
But the industry is immensely profitable, because the cyber charters get paid full state tuition and provide almost nothing, unlike a brick and mortar school that must provide heat, electricity, a custodian, a library, transportation, etc. Cyber charters make all those things unnecessary, but at the same time that provide as meager an education as is possible.
Greene writes:
Rep. Curt Sonney is a GOP top dog in the Pennsylvania Education Committee, and he’s never been known as a close friend of public schools. But he represents Erie, a district that has been absolutely gutted by school choice, so maybe that’s why he has spent the last couple of years nipping at the heels of Pennsylvania’s thriving cyber charter industry.
Harrisburg just had hearings on his latest proposal, a bill that he first announced last October and which has something for virtually everyone to hate.
Pennsylvania cyber schools are an absolute mess, barely covered by laws that never anticipated such a thing and protected by a massive pile of money thrown both at lobbying and campaign contributions.
The cybers do offer a service that is useful for some students (I personally know of one such case). But they also provide a quick exit for parents who don’t want to deal with truancy issues or other disciplinary problems. Their results are generally very poor (none have ever been ranked proficient on the Big Standardized Test), and state oversight is so lousy that many were allowed to continue operating for years without ever having renewed their charters.
But what really has drawn the wrath of even people who don’t pay much attention to education policy is that they are expensive as hell. Because the charter laws didn’t really anticipate this cyber-development, cyber-charters are paid at the same rate as a brick-and-mortar charter. So an individual student may bring in $10-$20K, but costs the cyber charter the price of one computer, one printer, and 1/250th of an on-line teacher. The profit margin is huge, but so is the cost to local districts, with poorer districts in the state being hit the worst.
A year ago, there was a bill floating around Harrisburg to change the game– if a local district opened a cyber-school, then any families that wanted to send their kid to an out-of-district cyberwould have to foot the bill themselves.
The bill (HB 1897) is a bit involved, and we’ll go digging in a moment, but the two headline items are this: all cyber-charters will be shut down, and all school districts will offer cyber education. Now, to look for some of those devilish details.
Betsy DeVos is a huge fan of cyber charters and has even invested in them.
Be that as it may, they are a financial success and an education failure.
Cyber charters have a very poor record, both academically and financially.
The former head of the now-closed virtual charter school Akron Digital Academy misused $167,753 of school money through a shell vendor, according to a state audit released Tuesday.
“This is a very serious abuse of taxpayer dollars and we will seek to recover every penny,” Ohio Auditor Keith Faber said in a news release. “Abuse of public trust has a rippling effect on communities and will not be tolerated by my office.”
The school, burdened with financial problems relating to improperly tracking enrollment, quietly closed in June 2018. At the time, it was housed at 133 Merriman Road, the former home of Temple Israel owned by the Akron Hebrew Congregation, which moved to Bath in 2011.
From December 18, 2009 to February 8, 2013, the school issued payments totaling $167,753 to a vendor known as Individual Development and Education Achievement Services (IDEAS), supposedly for professional development services, according to the news release issued by the state auditor’s office. IDEAS would send invoices directly to Lashawn Terrell who signed them, signifying receipt of services.
On July 1, 2013, the state auditor’s Special Investigations Unit received a complaint alleging embezzlement. Auditors examined the bank activity of Terrell and the owner of IDEAS, Danielle Lumpkin, the news release said.
They identified 78 withdrawals totaling $137,575 issued from the IDEAS checking accounts that corresponded to deposits totaling $65,735 and $71,840 in Lumpkin and Terrell’s personal bank accounts.
Additionally, auditors found $30,160 in expenditures issued from the IDEAS checking accounts comprised of checks issued to Lumpkin for cash and debit card activity in merchant stores for personal purchases, the news release said.
Auditor Faber issued a finding for recovery for $167,753 against Lumpkin and Terrell.
The school closed last year after repayments to the state involving not properly tracking enrollment became too much of a burden on the virtual charter school’s budget, the school said at the time. .
The school’s monthly payments on the $2.8 million the state said it owed created a negative financial outlook through the next school year, said Linda Daugherty, the schoool’s former executive director said at the time. .
Akron Digital Academy was founded in 2002 by former Akron Education Association President Neil Quirk. The new school was meant to provide an alternative for Akron Public Schoolsstudents who were leaving for other charter schools and wanted more digital learning. It served students in grades 6-12.
Akron Public Schools was the sponsor until 2013, when Superintendent David James proposed closing the school for a range of issues. The school continually posted low academic scores. And enrollment had dipped to about 600 students as competition crept in from other charter schools, which were springing up in Akron.
James served on Akron Digital Academy’s board of directors at the time. The other board members blocked his attempt to close the school. And the district severed ties with the academy a month later by dropping its sponsorship agreement.
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