Millions spent on oversight for troubled charter schools

A Cincinnati nonprofit that sponsored seven charter schools where administrators were accused of stealing more than $2 million says it is keeping a closer eye on the schools it is supposed to oversee.

But a decade after Ohio handed financial oversight of charter schools to sponsors such as the Cincinnati-based Educational Resource Consultants of Ohio, there are signs the system needs improvement. ERCO and other sponsors operate with rules that create potential conflicts and face few startup requirements, a Dayton Daily News investigation found.

“I think Ohio needs to seriously revisit and do a rewrite of charter school law,” said Terry Ryan, executive director of the Fordham Institute, a Dayton-based charter school think tank and charter sponsor. “It’s kind of a hodge podge of policies put together over the years.”

ERCO was the sponsor for seven schools — including four in Dayton — at which treasurer Carl Shye and superintendent William Peterson and others are accused of stealing more than $2 million.

ERCO currently sponsors 22 charter schools across the state, including City Day Community School in Dayton. It has also sponsored 15 failed schools, giving it one of the highest failure rates in the state.

The nonprofit receives up to 3 percent of each school’s taxpayer-provided income, an estimated $797,171 last year in sponsorship fees.

It is one of 70 sponsors across the state that receive up to $17.8 million from the schools for oversight in the 2011-2012 school year.

Schools pay sponsors

Ohio’s school sponsor system grew out of a 2002 report by then-State Auditor Jim Petro that found the Ohio Department of Education was doing a poor job managing its 96 charter schools. The report suggested handing oversight of the schools to sponsors such as universities.

With the state’s blessing, the sponsor brings each school into existence by signing a contract with the school. This contract gives the sponsor enforcement power, allowing it to sanction a school or shut it down if it violates the contract or state law.

Some question the wisdom of having sponsors paid by the schools they monitor.

“There are authorizers in this state that are in a position that if they were to close a school it could put their own financial stability on the hook,” Ryan said.

He said it is particularly true of sponsors that also sell treasurer services and other consulting services to schools in addition to the sponsor contract.

“Authorizers should be nothing but authorizers, and they shouldn’t sell any supplemental services,” Ryan said.

Fordham sponsors eight schools in Ohio, meaning its sponsor revenue is as much as $368,075. It has had four closed schools.

Today there are 355 charter schools across the state and roughly 60 more in the pipeline — including possibly six in Montgomery County — and Auditor Dave Yost is working to suggest changes to improve oversight in the wake of several scandals.

Yost told this newspaper last week that the vast majority of charter schools get clean audits and hold themselves accountable. But just like public schools, some do not.

“We’re looking at things like Richard Allen (Academies in Dayton, where state audits found conflicts of interest). We’re looking at the Carl Shye experience,” he said. “We’re looking to understand the common threads, lessons learned and what way the current structure either allows or encourages these things.”

Yost also questioned having sponsors paid by schools: “I think it’s a fair question to ask whether we expect somebody who is going to suffer a financial setback to have responsibility to act to close an operation.”

ERCO parent company a family business

ERCO is a subsidiary of a nonprofit called Christ Tabernacle Ministries of Excellence. The nonprofit oversees ERCO and a state-subsidized childcare center based out of Christ Tabernacle Apostolic Church on Ross Avenue in Hamilton.

Christ Tabernacle Ministries — which operates seperately from the church — had a total revenue of $986,548 in 2011, according to federal tax documents. The only listed employees of the agency were the executive director of ERCO and his wife, who were paid a combined $160,792. This pay is down from 2008, when the director’s elderly father was listed as the agency’s president and the three were paid a combined $271,790.

The Christ Tabernacle child care center has received $285,114 from the state since 2010 for subsidized childcare, according to state records.

ERCO officials would not speak to the structure of the nonprofit, referring questions to ERCO and Christ Tabernacle CEO James L. Harding, who did not return a message left for comment with his wife.

Harding founded ERCO in 2005 using the day care center’s assets, nonprofit status and stated purpose as a learning center. He is a doctoral candidate at the University of Cincinnati’s Urban Education Leadership Program and has worked as principal of a school in northeast Ohio.

15 failed schools

According to tax filings, the nonprofit’s revenue grew from $84,580 in 2004 to a high of $1.4 million in 2008. It then declined as 13 of its schools were shut down.

The only other sponsor in Ohio with so many failed schools is the Lucas Educational Service Center, which sponsors three times as many.

ERCO Assistant Director Aaron Kinebrew said his agency’s high failure rate stems from early mistakes. He said when ERCO was formed in 2005 the state was cutting down on the number of schools per sponsor and told other sponsors they had to get rid of some.

“We ended up getting those schools that other sponsors didn’t want, unbeknownst to us. We had no idea, so those are the schools that really closed,” Kinebrew said. “If we hadn’t gotten them, that sponsor probably would have closed those schools down.”

This includes the schools where Peterson and Shye worked, he said.

“Then, we had no idea (the schools were failing). None whatsoever, I’m just being honest. But now we have a handle on it. We have systems in place. We research. Back then we researched this much, a very small amount, now it’s much more,” he said.

Of ERCO’s 15 failed schools, two were closed due to poor academic performance, nine were shut down by the sponsor because of lack of funds or contract violations, and four were closed voluntarily by the school board, according to DOE records.

State to rank sponsors

Dave Cash, president of a company that manages the charter school function for St. Aloysius Orphanage in Cincinnati, said sponsors are just looking to see if a school has enough money to make it through the year, which isn’t enough detail to catch fraud.

“If you’re not the one that’s actually writing the checks, if you’re not the one checking particular vendors, you’re not going to know some of these things,” said Cash, who also is chairman of the Ohio Association of Charter School Authorizers.

St. Aloysius has eight schools listed in state records as potentially opening next year, as well as three high schools in Dayton seeking approval from the city’s Board of Zoning Appeals.

St. Aloysius, which is a mental health treatment center in Cincinnati, currently sponsors 46 schools, the second highest number in the state. Its revenue from charter sponsorship is up to $1.7 million.

It has had five schools fail, including New Choices Community School in Dayton that the sponsor shut down because of financial problems, as well as the two ISUS schools that closed themselves because of revenue shortfalls.

All three sponsor organizations interviewed support a state effort to grade sponsors, similar to how schools themselves are graded. Starting in 2015, each sponsor will be rated exemplary, effective or ineffective in areas including compliance and student performance.

“I think it will have an effect that those that are serious about it will keep doing it and those that are less serious may not,” Cash said.

Other failed oversight

ERCO wasn’t the only failed layer of oversight. The first in each case was the school board, which is appointed by the founders of the charter school itself. The final layer — and the one that found much of the misspending — was an audit by the state of Ohio.

Between these two layers is the treasurer, who works for the board but is also required to advise the board about what it legally can or can’t do. State law recently increased oversight of these treasurers, putting their licenses on the line if money is misspent.

Kinebrew said recent rules saying governing school board members can’t be related to the school’s operator is an improvement, but that the close relationship between boards and school founders has been a problem.

“I’ve seen where the superintindent, or let’s say the operator, was running the school. I’ve seen that even though they have a board of directors, the operator was running the school. They were dictating,” he said. “I’ve seen a transition where it’s reversing.”

But sponsors say charter schools struggle to get the five required board members, and even if they’re not immediate family the board members are often cousins or friends.

Yost said sponsors and boards can and should look for red flags such as whether payments for a contract start before the contract is voted on or if a large number of checks are being written to cash.

“You don’t have to get down into the weeds and see every check that goes through,” he said. “You have a duty to know what’s going on.”

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