By Abrahm Hurt
TheStatehouseFile.com

INDIANAPOLIS–Indiana wants $40 million slashed in future state funding to recoup dollars given to two virtual charter schools that allegedly inflated their enrollment numbers.

But getting the money, despite Wednesday’s recommendation by the State Board of Education recover it, won’t be easy. One, the Indiana Virtual School, closes in September and the other, Indiana Virtual Pathways Academy, is scheduled to close after the next school year.

On the table: legal action.

Asked by a board member if the apparently phony enrollment numbers got into the realm of potential criminal activity, State Examiner Paul Joyce answered: “I would say yes.”

While he demurred on whether the FBI or state law enforcement had been contacted about this case, Joyce said: “In situations like this we do contact all our law enforcement partners to work with them.”

Tim Schultz, general counsel for the board, said suspending future payments to the schools is the only way to begin recovering the funds, and recommended that a local prosecutor be appointed to pursue the overpayments.

The scandal was first reported by the education news site Chalkbeat Indiana and was pursued by state agencies, with an audit still going on.

A preliminary report from Joyce and the State Board of Accounts found that the two virtual schools, both authorized by the Daleville Community Schools, reported having a least two times as many students as they did have. For three years, the state examiner found, the schools padded their enrollments with inactive and out-of-state students. Five years after two students moved to Florida, they reappeared on enrollment records for Indiana Virtual School from 2015 through 2017 and then for Indiana Virtual Pathways Academy in 2018 and 2019.

And in one case, Indiana Virtual Schools reportedly kept a student who had died on its rolls.

In addition, the board was told, many of the students were simply not doing any classwork. From 2016 through 2018, 4,535 students from both charter schools were reported as not receiving any credit for courses.

Over 900 inactive students were kicked out of both schools in the 2017-18 school year but were re-enrolled the next school year. These students were included in their Average Daily Membership, the calculation used to determine a school’s share of state dollars.

The schools were budgeted 15.1 million in 2016-17, a number that doubled in the next school year. For the 2018-19 school year, they received $34.7 million in state funding and have received more than half of that as of June 27. According to Chalkbeat, it’s unclear how the schools spent some $80 million in public funding from 2016 to 2018 because they have failed to file annual audits.

The scope of the apparent deception led B.J. Watts, chairman of the state board of education, to ask a pointed question: “How did we miss this? How was this missed and by whom was this missed?”

Percy Clark, the superintendent of the two virtual schools, attended the hearing but said nothing though he had warned in a July 5 email to the board that garnishing their future funding would lead to their immediate closure.

Daleville Superintendent Paul Garrison, who was grilled by board members because that district was paid about $2.4 million over three years to oversee the virtual schools, admitted: “This isn’t one of my proudest moments.”

Garrison defended the district, saying it had raised red flags about the virtual schools but had been hampered by an inability until recently to obtain enrollment data. Board members shot back that Daleville had drafted a poor contract with the schools that didn’t ensure accountability.

State Rep. Ed DeLaney, an Indianapolis Democrat who attended Wednesday’s board meeting, said the state should look in the mirror as it seeks to determine whom to blame.

“The authorizer’s responsible. The state board’s responsible,” he said. “We set it up for failure, and somebody figured out how to make it fail to their benefit.”

MaryAnn Schlegel Ruegger, an attorney in Broad Ripple, told the board that employees “have been trying and begging for someone to listen to them for years about Indiana Virtual School. They went to the appropriate places and those places didn’t have the authority to help them. And some of those employees were fired for doing that.”
“So, we’ve had whistleblowers for years, and now it’s come to this,” she said. “And now we’re out all of this money.”

As part of its recommendations, the board voted to encourage the state to enhance how it monitors charter schools.

Adam Baker, press secretary for the Department of Education, said that now that the board has made its recommendations to recoup funds and improve oversight, “now we will move into the phase of what does that look like.”

The answer to that likely will be a hot issue in upcoming legislative sessions and elections.

State Sen. Eddie Melton, a Democrat from Gary who is exploring a run for governor in 2020, issued a statement saying virtual schools need to be held to the same standard as other public schools.

“Education in Indiana already has been underfunded for years, and budgets have been strapped,” he said. “The last thing we need is virtual schools taking money from the state that doesn’t even go towards educating children.”

FOOTNOTE:  Abrahm Hurt is a reporter for TheStatehouseFile.com, a news website powered by Franklin College journalists.