Clouds

January 3, 2014; Washington Post

The burgeoning scandal involving the Options Public Charter School is an all-in-one composite of everything that might go wrong with private, for-profit “educators” trying to make more than a buck from public education under the guise of charter school management. To wit:

  • Federal investigators charged that managers of Options diverted millions of dollars to for-profit companies they ran through a Medicaid fraud scheme. The federal investigation is still underway regarding how Options may have exaggerated the number of students with disabilities it enrolled and the services the school provided them in anticipation of federal Medicaid reimbursement.
  • Jeremy Williams, a senior official working for the D.C. Public Charter School Board, the entity that oversees charters—and who was responsible for “rooting out financial wrongdoing,” according to the Post—allegedly took $150,000 from the managers of Option Public Charter School to help them “evade oversight and take millions of taxpayer dollars for themselves.” He allegedly funneled inside information to the Options managers, alerting them to “surprise” inspections and other oversight issues. In August, Williams left the board, joining a Virginia-based company he owns, which allegedly received over $100,000 in fees from one of the for-profit companies owned and run by the Options managers.
  • A local television news personality, J.C. Hayward of CBS-affiliate WUSA (Channel 9), had an ownership interest in one of the companies contracted to manage Options and was paid $8,500 to attend company board meetings. Hayward was also board chairwoman of Options and signed contracts that provided hundreds of thousands of dollars to Exceptional Education Services (EES), one of the two for-profit companies controlled by the Options managers, in which she was recognized as a part owner, having received 10 percent of the company’s shares. WUSA put Hayward on leave after the allegations about Options arose.
  • EES was originally a for-profit subsidiary of the nonprofit Options, which meant that all EES profits were supposed to go to the school, but in 2012 the Options managers and Hayward transferred EES ownership from Options to themselves personally.
  • After the Options managers took full personal ownership of EES, they hired a subcontractor for busing Options students but charged Options a 77 percent markup for the service (a $45,000 markup on top of the subcontractor’s cost of $31,000 a month), plus a $100,000 “ridership bonus.”
  • The Options Form 990 for July 1, 2011, through June 30, 2012, indicated that the salary of Options “CEO” Dr. Donna Montgomery was $254,679, a decent salary for a charter school principal. According to the Post, Montgomery allegedly received compensation of $660,000 from Options and EES, plus another $212,000 from the other company the Options executives ran, EEMC.
  • The lawyer representing the for-profit management company offered the “it’s well known common practice” defense. “These related-party transactions between for-profit management companies and the nonprofit public charter schools are not only appropriate and lawful, but the same arrangements exist with several other public charter schools,” said A. Scott Bolden, though he didn’t identify those other nonprofit charter schools pursuing the Options model.

There’s little question of what was involved here in D.C., which has the largest proportion of public school pupils of any in the nation enrolled in charter schools: A nonprofit charter school hires a for-profit management company or, in this case, companies, controlled and owned by insiders, who turn the for-profit arrangement, meant to benefit the school, to benefit themselves. In addition, a member of the press who should be steering clear of entanglements in public, nonprofit, and private boards that might be topics of news coverage appears to have been involved way too deep. And the public oversight body’s response to the Options’ attorney’s “common practice” defense was so tepid as to suggest that the attorney may have a card to play as this case proceeds that might embarrass the regulators.

It is worth noting that in the most recent Form 990 filed for the nonprofit Options Public Charter School, the organization answered Part VI, Section A, item 5 that it had not experienced any “significant diversion of the organization’s assets.” That shouldn’t be a surprise. Nonprofits engaged in these kinds of alleged self-dealing arrangements don’t check the box telling the IRS, “Please investigate us because we might be crooks.” Crooks who run nonprofits don’t consider filling their pockets with nonprofit assets a diversion, though the courts haven’t yet ruled on whether the allegations concerning Options puts its managers into the “crooks” category.

There are plenty more allegations in the court documents filed by the D.C. AG on top of the Medicaid fraud charges. If half of these charges are proven—if even a quarter are—these practices by Options Public Charter School and its for-profit partners along with the lackluster oversight by the District’s oversight board should be roundly excoriated by charter school advocates around the nation. That is, unless they fear that Attorney Bolden’s “it’s well known common practice” defense holds more than a few grains of truth.—Rick Cohen