The Embezzling, Unregulated World of Online Charter Schools

As schools remain closed due to COVID-19, parents and policy leaders may be tempted to think of online charter schools as a solution. But an ongoing scandal in Oklahoma focused on the academic and regulatory problems posed by these schools presents a cautionary story. 

After years of failing to regulate charters, especially online and for-profit charters, Oklahoma is just one state that illustrates how hard it is to catch up and hold virtual schools accountable for either education outcomes or financial transactions.

If nothing else, Epic is helping to nail down the case that charters are a tool for privatization.

In July 2019, according to an Oklahoma State Bureau of Investigation search warrant, “[Epic’s co-founders] enticed ghost students to enroll in Epic by offering each student an annual learning fund ranging from $800 to $1,000.” This was despite the fact that Epic knew that the parents of many homeschool students “enrolled their children . . . to receive the $800 learning fund without any intent to receive instruction.”

Epic’s recruitment of “ghost students,” who were technically enrolled but received minimal instruction from teachers, allowed the company to legally divert state funds for their own personal use, while simultaneously hiding low graduation rates to attract more support.   

This year, Epic has received over $100 million in taxpayer money. And the company, in an exposé by the Tulsa World, admitted that over the years its “Learning Fund”—which is shielded from public scrutiny—received $50.6 million from the Oklahoma State Department of Education. 

Tulsa World estimates the Learning Fund could cost the state about $28 million for 2019-2020. Moreover, the private management company Epic Youth Services receives a “10 percent cut” of the charter’s student funding. Also, state appropriations pay for the millions that Epic spends on  advertising and generous contributions to elected officials.

If nothing else, Epic is helping to nail down the case that charters are a tool for privatization.

When news of the Learning Fund broke, Epic provided parents with a video that explained, “We are a state funded public school.” The “difference” is that “we let our parents give input into how some of our state funds are used.” 

Though Epic has said there is “nothing secret” about its Learning Fund, William Hickman, the charter’s attorney, refused to release requested documentation, saying “the records of the expenditures of the Learning Fund dollars are not subject to the open records statute.”

While being interviewed, however, Hickman inadvertently clarified questions about the roles charters play in school privatization. 

“The State Department of Education, the statewide virtual charter school board, and auditors have not treated the learning fund expenditures as public funds,” Hickman said. “Once the funds are paid to the management company, the dollars are no longer public funds . . . the records of the expenditures of the learning fund dollars are not subject to the open records statute.”

Tusla World’s investigation also raises questions about the possible interactions between private corporate powers and elected officials. Attorney General Mike Hunter and Oklahoma County District Attorney David Prater, two prosecutors who could decide the embezzlement case against Epic, claimed that the investigation has not been affected by personal ties or lobbying. 

But as Tulsa World noted, Hunter is one of the main recipients of Epic’s political campaign donations. And Prater is married to a top executive at Rose State College, one of Epic’s sponsors. 

Earlier in February, as the criminal investigation dragged on, state Representative Sheila Dills quickly drafted a bill that would empower the Oklahoma Department of Education to issue subpoenas. As Dills explained, “If any agency needs this power, it is the State Department [of Education].” Dills also said, “There is often a delay by months, and it is difficult when they are bringing in law enforcement that does not have the education knowledge.”

Dills’s bill, the Virtual Charter School Reform and Transparency Act of 2020, tackles some of the biggest problems that were brought to light with the ongoing Epic investigation. Prohibiting “ghost students,” it requires standard attendance metrics for virtual schools, including a rule that students must complete forty assignments per quarter.

The bill passed the House unanimously, but the COVID-19 pandemic has created uncertainty about the rest of the session.

It has been more than a half a year since the OSBI began its investigation of Epic. The digital journal Nondoc reported that Epic had until March 25 to respond to state lawsuits, but because of the pandemic, the Oklahoma Supreme Court extended the deadline by thirty days. 

On March 24, according to Nondoc, “Epic Charter Schools voted late Monday night to approve ‘a contract compliance audit’ of its controversial ‘Learning Fund.’” But, “board members declined to answer questions about what ‘a contract compliance audit’ entails or whether they will be complying with Oklahoma State Auditor and Inspector Cindy Byrd’s request for financial documentation related to Epic’s contract with a private, for-profit management firm called Epic Youth Services, LLC.”

Nevertheless, a board member did state that “criticism of Epic ‘pisses me off.’ ”

In trying to regulate online charters, “we’re riding a donkey into the space age,” as an Oklahoma public school official put it. Oklahoma was not alone in rushing down the path toward online instruction without contemplating the downsides of virtual schooling. And as the state continues the long slog, belatedly trying to hold Epic accountable, it should be remembered that even the best regulations are hard to enforce.

Right now, all of Oklahoma’s schools are closed and most are scrambling to create an online instruction system by early April. It’s hard to say which will be the tougher battle, rolling out remote learning or carrying out an accountability system for “pissed-off” Epic privatizers.