State could seek $40M after probe finds virtual schools inflated enrollment

Two school years after a student died, Indiana Virtual School kept him on its rolls and received state funding to educate him.

Five years after two students moved to Florida, they reappeared on enrollment records for Indiana Virtual School and its sister school.

And nearly every one of the more than 900 students kicked out of Indiana Virtual School and its sister school in the 2017-18 school year for being inactive were re-enrolled the next school year, included in per-pupil funding calculations that netted the two online schools more than $34 million in public dollars last year.

These were among the ways that Indiana Virtual School and Indiana Virtual Pathways Academy allegedly inflated their enrollment to at least twice its actual size, according to the findings of a state examiner’s investigation released Monday.

Now, the state could demand that the schools—slated to close next year amid widespread mismanagement—return about $40 million in funding for students they never educated.

The Indiana State Board of Education is set to discuss at its Wednesday meeting whether to claw back money from the virtual schools, which have been the subject of numerous Chalkbeat articles examining financial conflicts of interest and dismal academic performance. Board members could vote to recover half of the money that the schools received over the past three years by reducing state funding going forward.

But the virtual schools’ superintendent, Percy Clark, said that if the state asks for its money back, the schools will be unable to pay for teachers and educational services, which “means the end of the road for the schools and most of their students.”

In a written response to the state education board, Clark did not address the enrollment discrepancies, but defended the online schools for serving “last-chance students” who have dropped out of or been expelled from traditional public schools—even if they weren’t active.

He accused state education officials of trying “to remove educational choice and force students to remain in school environments in which success has evaded them and where hope has abandoned them.”

“The beacon of hope has just been doused,” Clark concluded.

Daleville Community Schools, the rural district that oversees Indiana Virtual School and Indiana Virtual Pathways Academy, also contested the state board’s consideration of recovering funding. Daleville receives 3% of the virtual charter schools’ state funding, a fee for monitoring the schools that amounted to about $1 million last year.

Virtual schools have grown rapidly in Indiana over the past decade—despite largely poor student outcomes and the closure of a large, failing virtual school—with five statewide schools where students learn completely online, a handful of hybrid learning options, and districts opening their own all-online programs.

The allegation that Indiana Virtual School inflated enrollment is the latest incident in a series of online school scandals across the nation.

In California, virtual charter school leaders were indicted earlier this year after officials say they signed up thousands of students — who often didn’t know they were enrolled—to bring in millions in state funding. More than $50 million was sent to companies linked to the school leaders for services that they never provided.

In Ohio, the Electronic Classroom of Tomorrow, or ECOT, claimed to serve some 15,000 students, but state officials found the virtual charter school was significantly inflating its numbers and said the school owed $80 million in funding. The Ohio attorney general is suing the school’s founder, a federal investigation was opened, and a local prosecutor will weigh criminal charges, though none have been filed.

The investigation into Indiana Virtual School and its sister school isn’t over. The enrollment discrepancies emerged in a preliminary report Monday from State Examiner Paul Joyce, whose office is auditing the two virtual charter schools after they failed to file mandatory annual financial reports. The full examination, which looks at the schools’ finances from 2016 to 2018, is not yet complete.

Last year, the two schools reported enrolling more than 7,000 students combined, which set them up to receive more than $34 million in state funding.

But, according to the auditors’ investigation, most of those students hadn’t attended classes for months—even though the schools’ policy says inactive students who don’t contact the school will be withdrawn.

In fall 2017, for example, more than half of students at Indiana Virtual School and Indiana Virtual Pathways Academy had been inactive for more than six months. Nearly three-quarters of students had been inactive for at least three weeks.

“We have verified that students who IVS staff admitted should have been withdrawn based on their Student Engagement Policy were in fact not withdrawn,” Joyce’s affidavit said.

From 2016 to 2018, the schools’ course data shows 4,535 students didn’t receive any credits for completing classes.

State auditors discovered the enrollment of the two students who had moved out of state and the student who had died after scrutinizing 100 student profiles. The Indiana Department of Education certifies the student counts used for funding to ensure students don’t show up on the rolls for more than one school, but spokesman Adam Baker said it’s a school’s responsibility to verify residency and report when a student’s status has changed.

In his response, Clark said Indiana Virtual School currently has about 500 actively engaged students, and Indiana Virtual Pathways Academy has about 2,000—significantly fewer students than the schools have reported enrolling in recent years.

He did not explicitly say how the schools spent the funding they received for inactive students but indicated the money had been expended, saying that without ongoing funding, Indiana Virtual School would be unable to graduate about 90 seniors in September.

Clark also said students often enroll in the schools simply because they have to be in school until they’re 18. But it’s up to the students to attend online classes and do the work, he wrote: “What follows enrollment is a function of the student and his or her desires.”

Clark also blamed “the present educational system and the shortcomings or failings of the familial support system” for creating the population of struggling, disengaged students who have fallen so far behind in their education. He accused the state of not having enough charter and virtual school regulations, and he claimed the state was being unfair in its process to reclaim funding.

A 2017 Chalkbeat investigation exposed how Indiana Virtual School was funneling millions from its state funding to companies connected to its founder, Thomas Stoughton, and his son.

In 2015-16, the most recent audit available, AlphaCom billed Indiana Virtual School for more than $6 million for management services but forgave some $463,000 owed. The company also billed the school more than $2 million for software fees for a project that wasn’t completed and extended into the following year. Stoughton’s son’s company charged the school more $1 million for IT and marketing services.

Stoughton sold his interest in AlphaCom, the company providing software and management, administrative, and technology services to the school, and later stepped down from the school’s board.

Chalkbeat is a not-for-profit news site covering educational change in public schools.