This month, a federal-level report stressed that those payments present an increased risk for fraud. The reason? Many virtual schools — programs where students learn almost entirely remotely — are funded in the exact same way as public school districts, but are not held to the same accountability standards.
Less-regulated cyber schools pose an "increased risk" to federal money that flows through states into school coffers, the auditors found. In 2021, Michigan's 15 cyber schools received more than $100 million sourced from state tax rolls, in addition to $54 million that schools received in federal COVID relief. Like with other charter schools, there is little oversight by the Michigan Department of Education on how the money is used.
The audit in question comes from the Government Accountability Office, a branch of congress that produces nonpartisan reports to improve government. The GAO is best known for a 1972 report highlighting campaign finance issues, which later developed into the Watergate scandal.
Nationwide, GAO found that virtual schools are irregularly monitored by state and federal agencies, largely because of loose rules around attendance and because of veiled contracts with for-profit management companies.
In Michigan public schools, teachers track attendance when a student shows up in the classroom. Attendance taken on two important "count days" determines how much money the school will get from the state.
Absent that luxury, virtual schools have come up with work-arounds — such as weekly teacher reports or attendance by login — that aren't consistent and that states can't track. Despite those inconsistencies, the schools still receive aid. The report cited a recent 2019 audit — not in the state of Michigan — where a virtual school misreported attendance to receive $80 million dollars in extra funds.
"It is when attendance counts are not accurate that you could be receiving more or less federal funds than you should," said Jacqueline Nowicki, who directed the GAO study. "That presents serious concerns for us as an accountability organization."
The agency identified elevated risk in cyber schools run by for-profit companies, dovetailing off of a 2016 audit conducted by the Department of Education.
"Their interest in profits may outweigh the school's interest in complying with federal program requirements and providing high-quality educational services to students," that report stated.
Last fall, the Record-Eagle reported on how contracts like these detoured millions of federal relief money to 13 cyber schools across the state. The money — meant to assist with learning loss and the jump to virtual — was also distributed based on attendance.
In the case of a Manistee cyber school, Great Lakes Virtual Academy, $3.3 million in relief money went to its management company, a publicly traded learning corporation based in Pennsylvania. That sum is decided by the school's contract, which uses 22 percent of state and federal aid to pay for the corporation's technology and management services.
That same percentage is extracted from the school's regular state funds, to the tune of $6.7 million dollars in the 2021-2022 school year, according to documents from the Michigan Department of Education and specifications in the school's contract.
Previously, the Great Lakes' superintendent said that the remainder of the money was put toward learning loss, as well as towards hiring more school counselors and building up mental health resources for the student body. Michigan is unusual in its high percentage of charter schools that contract with for-profit companies. In 2020, 85 percent of charters in the state contracted with private management organizations, according to research from the National Education Policy Center. The state has become known for its open-arms approach to charters, including cyber charters, said David Arsen, professor of Education Policy and Educational Administration at Michigan State University.
Michigan is also unusual in how it regulates schools. Charter schools contracts can be approved by school boards and universities, some of whom do so knowing that higher enrollments will bring in more money to the district, Arsen said.
Those contracts aren't reviewed by the Michigan Department of Education, nor are the schools' curricula. And many schools simply don't report line-by-line expenses such as teachers salaries.
"Michigan has been basically accepting that. We don't have the same degree of information about the spending on privately managed charters, including virtual charters, that we do for regular districts," said Arsen. "Really, the accountability dimension has been very, very lax for virtual schools."
Murmurings that virtual schools might deserve scrutiny began under former Gov. Rick Snyder, who proposed a 20 percent funding cut reflective of "the actual cost of running a virtual school."
The premise of the cut was that virtuals didn't need to pay bus drivers, run chemistry labs, or maintain buildings — expenses that add up in public school districts. Therefore, they shouldn't receive the same per-pupil funding as schools with higher costs.
Those cuts didn't make it to the budget's final form, a reflection of a strong strain of school-choice advocacy in Michigan politics.
"Efforts to curtail the funding have been resisted," said Arsen. "Even when a Republican governor was suggesting that it might be a good idea."
Cyber School enrollment has ballooned in the past decade, boosted again by a surge of enrollment caused by the pandemic. Higher enrollments have doubled, even tripled the operating revenues of many charters.
The average graduation rate among Michigan's 15 cyber schools was 50 percent, according to 2020-2021 school year data from the MDE. The graduation rate — including both traditional and virtual schools — was 80 percent.
©2022 The Record-Eagle (Traverse City, Mich.). Distributed by Tribune Content Agency, LLC.
