Keep Following the Money: Financial Accountability and Governance of Cyber Charter Schools

Abstract

Cyber charter schools are expanding as a sector of public education. Pennsylvania has the highest number of cyber charters in the country, including several schools that enroll thousands of children from across the state. These large cyber schools, though themselves non-profit entities, are often managed by for-profit management entities, who receive millions in public funds through their management contracts. The financial accountability and governance of the schools have received little attention from regulators or scholars. Although the cyber charter school issues are national in scope, this article focuses on Pennsylvania as an example of how these issues are playing out. In 2011-2012, cyber charters in Pennsylvania enrolled over 33,000 students and received over $400 million in public funds. The founders of two of the five mega-cybers in Pennsylvania have been indicted for fraud by by federal authorities. The article examines the weaknesses of the existing oversight system which relies primarily on disclosure of information to the state Department of Education and other governmental agencies, all of which lack adequate resources to respond effectively to the disclosures. My focus is on how the schools fit into the larger debate over governance of nonprofits, not to evaluate the educational value of this form. Charter schools, including cyber charters, share the same challenges of overreliance on disclosure instead of enforcement of rules, insufficient education and training of board members, and a lack of transparency as other non-profits. The article reviews the issues raised by the available documents which raise questions about the frequent use of for-profit management entities, expenditures for advertising, and the concerns about conflicts of interest raised in some cases. The article proposes increased funding for oversight, revision of the funding formula to reflect the lower costs of cyber education, and greater transparency by the schools.

Keywords: cyber charter school, non-profit governance, financial accountability, privatization, public education reform

JEL Classification: K00, K10, K19, K39