New Report: Charter Fraud And Waste Worse Than We Thought

The original report underestimated the number of charters that had taken federal grant funds and then either closed or never opened at all. That report found 1,000 such charters; the number now appears to be closer to 1,800. That means the failure rate is close to 37% nationally. Michigan gave grants of at least $100,000 to 72 schools that never opened at all; California gave grants to 61 unopened schools. Those two states alone account for over $16 million dollars spent without educating a single child. A grand total of 537 schools never actually opened; tax dollars spent on literally nothing.

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For-profit charters have never been allowed to receive monies from this grant program, but plenty of for-profit charter management companies have had their schools apply successfully. It’s a reminder that “for profit” and “non-profit” are, when it comes to charter schools, a distinction without a difference. Hot Stuff Podunk Academy may well be a non-profit school, but if it is wholly operated by Hot Stuff Academies Charter management Company, a for profit company that handles the operation of the charter, the academy is still generating profits.

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The report also provides several examples of how a non-profit charter is simply a pass through for a for profit corporation. For example, the White Hat Management company was an Ohio-based for profit charter management organization that operated sixteen Life Skills charter schools in five different states. Some of those charters paid 97% of their income to White Hat, which also operated a real estate company that leased buildings to schools. Thirteen of the Life Skills charters have ceased operations.

The report also drills down in two charter-heavy (Arizona and Ohio) to see why charters fail. In both states, enrollment was the primary cause (despite the fabled charter waiting list we often hear about) followed by mismanagement/fraud, then financial issues and academic concerns. The study also found a surprising number of charters that closed because the operator simply abandoned them. Stories also illustrate the shock and surprise that occurs when charters simply and suddenly close up shop mid year.

Among the report’s conclusion is this:

We have concluded that the practice of allowing unauthorized schools to receive funds, which has been in effect since 2001, has become a magnet for grifters, consultants and charter entrepreneurs who see an easy way to cash in.