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Oklahoma’s EPIC Virtual Charter School: Too Much Money, Too Fast, and More

July 20, 2019

According to the July 17, 2019, Oklahoman, the Oklahoma State Bureau of Investigation (OSBI) served Epic Charter Schools, the largest virtual charter school chain in the state, with a search warrant; OSBI alleges that Epic’s co-founders, David Chaney and Ben Harris, have been stealing public money via inflating school enrollments.

From the Oklahoman:

A state investigation alleges Epic Charter Schools, the state’s largest virtual charter school system, embezzled millions in state funds by illegally inflating enrollment counts with “ghost students.”

The Oklahoma State Bureau of Investigation alleged Epic co-founders David Chaney and Ben Harris “devised a scheme to use their positions as public officers to unlawfully derive profits from state appropriated funds.”

An OSBI agent made the allegations in a search warrant that sought evidence of embezzlement, obtaining money by false pretenses and racketeering.

Investigators reported Chaney and Harris “created a system of financial gain at Epic” when they founded the virtual charter school in 2010. The two co-founders have managed the virtual charter school through a for-profit company, Epic Youth Services, which receives a portion of Epic’s state funds. …

In its search warrant, OSBI alleged between 2013 and 2018, Chaney and Harris unlawfully received $10 million in profits from Epic Youth Services and split the total. …

“Ben Harris and David Chaney enticed ghost students to enroll in Epic by offering each student an annual learning fund ranging from $800 to $1,000,” OSBI reported in the warrant. “… The parents of many of the homeschool students admitted they enrolled their children in Epic to receive the $800 learning fund without any intent to receive instruction from Epic.”

Several parents refused instruction from Epic teachers but continued to accept the $800 learning fund and expenses, investigators found. Many Epic teachers dubbed these families “members of the $800 club,” investigators said.

The scheme described above reminds me of California’s A3 indicment of Sean McManus. In both the A3 indicment and Epic allegations, the ultimate goal was to defraud taxpayers by paying third parties to gain access to student information, which was then used to pad enrollment with no geniune intention of actually serving the students. Barely serving or not serving at all makes no difference, just so long as the charter operators are able to put that name on a roster; collect educational dollars from the state, and then funnel those dollars into charter management companies that the school CEOs also operated.

Charter schools are scam magnets, and it seems that the scams coming to light are increasingly sophisticated, involving numerous players of varying roles, all woven together in a web of ultimate greed. So goes it for Epic Charter School.

Let’s delve into some Epic charter history.

The nonprofit name for Epic Charter Schools is Community Strategies, Inc. (EIN 20-2774826). However, that nonprofit– Community Strategies, Inc.– did not start as a charter school.

Below is the Community Strategies mission as stated on its 2009 tax form:

The original purpose of Community Strategies, Inc. was to increase public awareness and educate consumers about the way energy, telecommunication and electric utilities operate and the significance of such operations. Thus citizens can make educated utility choices and get the most value for their money. Activities are designed to give the public an appreciation and understanding about these services which make up a large part of their daily lives. Forums and programs are designed to foster interaction between utility representatives, public policymakers and the general public. Meetings and materials provided are offered at no charge to interested persons. Plans are underway to create and maintain a website, to attend meetings and broaden our audience base.

The revised, approved purpose of the organization is the partnering with government and quasi-government entities to deliver professional services and less expensive reproduceable technology, management, and services solutions in the education, social services and public health areas by vertically improving all customer information facets of delivery systems to better educate those users and consumers. An initial project with the Philadelphia, Pa., Department of Human Services (DHS) was done to assist them in major information systems overhaul and modernization to improve data collection and reporting on the children at risk, to meet major priorities such as: Reduce out-of-home placements; expand family group decision making; and carry out major initiatives to make their software usable by other interested parties.

Some of these initiatives include: Performance management system construction; random case file review ability; integration of agency databases; electronic case management system construction; reform of provider evaluation instruments and standards; develop and refine Childstat program; collaborate with family court and data integration; and tracking the educational indicators for the children in DHS care for early warnings of difficulties.

In 2009, Community Strategies’ program revenue was $666,326, and Ben Harris was one of four unpaid board members. David Chaney was not amng those listed.

In 2010, Community Strategies’ revenue dropped to $60,024, and Harris was no longer listed as a board member.

Then came 2011, and Community Strategies, Inc., was also “dba Epic Charter School.”

Revenue jumped to $4.2M.

As for the mission, well, that became the following cut-and-paste from the 2009 mission, one not quite fitting the operating of a school, but let’s just slap it on the tax form anyway:

To partner with government and quasi-government entities to deliver professional service solutions in the education, social services and public health areas relating to technology and management.

Neither Harris nor Chaney is mentioned on the 2011 return, and no board members are paid.

In 2012, Community Strategies/Epic revenue dropped to $2M; still no board members paid, and Harris and Chaney not mentioned.

Then came 2013, the year that Epic was “first notified of an investigation,” according to its twitter posting following the July 17, 2019, Oklahoman article about the OSBI search warrant:

In 2013, Community Strategies/Epic’s revenue shot up to $9.9M. Harris and Chaney are not mentioned on the 2013 tax form, and no board members are compensated. In fact, according to Epic’s tax forms, no one is compensated. No one is identified as a “highest compensated employees,” and no organizations are listed as having any independent contracts.

Info on the Community Strategies/Epic Charter tax forms is suspiciously thin, a telltale situation I encountered when reviewing tax forms for California-based Today’s Fresh Start Charter Schools, in which school operators Clark and Janice Parker are involved in self-dealing using both nonprofits and for-profits. But back to Epic.

Meanwhile, from 2013 to 2014, the eybrow-raising revenue-leap continues. In 2014, revenue hits $13.3M; in 2015, it’s up to $21M, and who, exactly, is being paid is not disclosed on the nonprofit tax form as is should be.

In 2016, Epic’s revenue climbs to $29.3M. Its tax form is still notably lacking in information, but its 2016 audit indicates that Epic Charter School pays Epic Youth Services (EYS) LLC to operate Epic, and it pays for-profit Educational Administrative Services (EAS) for “bookeeping and consulting services including the services of a treasurer.”

(One can access LLC filing documents on the Oklahoma Secretary of State website, but there is a $5 charge per filing to read details. According to the July 17, 2019, Oklahoman, Chaney and Harris are allegedly paying themselves via a for-profit charter management org that they operate. Interested readers can search for documentation on EYS and EAS and pay related fees to peruse the documents. I chose not to pony up those fees.)

Epic’s 2016 audit does not include details about individuals exercising control over both Epic Charter Schools and organizations doing business with the schools. Such information certainly should be part of a solid audit, and the failure to directly address the issue with a clear yes or no concerning such overlap seriously limits the audit as a document of supposed accountability.

Moreover, Epic’s 2016 audit includes a questionable shaping of information to make the connection between pre-Epic-nonprofit, Community Strategies, and Epic appear to fit better than it does.  For instance, the 2016 audit states that the Epic mission is something other than Community Strategies’ mission warmed over:

EPIC’s mission statement is “Fulfilling every student’s individual potential by personalizing an educational plan that focuses on school and family partnership to achieve optimal student performance.” In education today, one size
doesn’t fit all. EPIC is dedicated to providing students and families with a learning environment that can meet an individual student’s unique needs. The core values of honesty, respect, tolerance, fairness, self-discipline, integrity, responsibility, citizenship, work ethic, and trust are the foundation upon which the School is built.

EPIC is a free PreK-12 public school for parents/students seeking a non-traditional education setting utilizing internetbased, individualized self-paced instruction provided in nearly any location. Each course is taught by an Oklahoma

None of those dressed-up audit details are included on Epic’s anemic tax forms. Not even close.

And as for the creation of the nonprofit Community Strategies: The Epic 2016 audit contradicts itself by first stating that “Community Strategies, Inc., an Oklahoma not-for-profit corporation described in Internal Revenue Code Section 501(c)(3), was formed for the benefit of a School to be called Epic One-on-One Charter School” (not true) then later stating that Community Strategies was “formed in 2005 but with no reportable activity until 2009.” (Only part of the story.  According to the IRS, Community Strategies was originally called the Oklahoma Consumer Education Foundation, with its first filing a 990-N “e-postcard” in 2007.)

The history of the nonprofit with the EIN of 20-2774826 is one of a nonprofit for a completely different purpose later being haphazardly refitted for operating a charter school. The lack of information on those tax forms sends the message, “We are invested in this charter school as a revenue stream, nothing more.”

And what a revenue stream it is. By 2017, Community Stragegies/Epic was pulling in $41.5M. It’s mission continues to be listed as the ill-fitting, “To partner with government and quasi government entities to deliver professional service solutions in the education, social services and public health areas relating to technology and management.”

As for how its spending the money, the explanation is as follows, spelling error included:

PROVIDING TECHNOLOGY SOLUTIONS TO GOVERNMENTAL AND QUASI GOVERNMENTAL ENTITIES INCLUDING EDUCATIONAL AND SOCIAL SERVICES ENTITIES. ON-LINE INSTRUCTION FOR ENROLLED STUDENTS WHICH IS MONITORED AND FUNDED BY THE STATE DEPARTMENT OF EDCUATION.

Here’s something I noticed on the 2017 return: In response to this question under “policies”:

Were officers, directors, or trustees, and key employees required to disclose annually interests that could give rise to conflicts?

The answer: No.

So, no disclosure of situations potentially leading to conflicts of interests on Community Strategies/Epic tax forms, and Epic audits stop short of identifying any conflicts of interest between Epic and EYS or Epic and EAS. (See here for Epic’s 2017 audit and 2018 audit.)

According to its 2018 audit, Community Strategies/Epic revenue reaches $50.3M.

So, let’s review Community Strategies’ remarkable revenue rise over the years:

  • 2007: <$25,000
  • 2008: <$25,000
  • 2009: $666,246
  • 2010: $60,024
  • 2011: $4.2M (began operating Epic charter schools)
  • 2012: $2.1M
  • 2013: $9.9M (notified of being under investigation)
  • 2014: $13.3M
  • 2015: $20.9M
  • 2016: $29.3M
  • 2017: $41.5M
  • 2018: $50.3M

Under investigation since 2013. Served with a search warrant in July 2019.

And now, this:

On July 19, 2019, Oklahoma governor, J. Kevin Stitt, sent a letter to Oklahoma auditor/inspector, Cindy Byrd, requesting an audit of Epic, paid for by Epic, as follows:

July 19th, 2019

Cindy Byrd
Oklahoma Auditor & Inspector
2300 Lincoln Boulevard, Room 123
Oklahoma City, Oklahoma 73105

Dear Auditor Byrd,

As authorized by Section 212(C) of Title 74 of the Oklahoma Statutes, I respectfully request an audit of Epic Charter School and all related entities. As required by the above citations, the cost of the audit shall be borne by Epic.

The scope of the audit should include a three year look back on all previously issued audits, as well as any federal audits done during that time period.

Sincerely,

/s/

J. Kevin Stitt
Governor

Section 212(C) of Oklahoma’s Title 74 reads as follows:

C. GUBERNATORIAL REQUEST

Whenever called upon to do so by the Governor, it shall be the duty of the State Auditor and Inspector to examine the books and accounts of any officer of the state or any of the officer’s predecessors. The cost of the audit shall be borne by the entity to be audited.

What is noteworthy about Stitt’s request is that the audit will be performed by the state, not by an auditor of Epic’s choosing, and that the audit request includes “all related entities,” which will surely include a close enough look EYS and EAS (mentioned only in passing in Epic’s 2016-18 audits) to reveal who operates (and benefits financially from) those entities.

Shine that light.

More to come, I am sure.

rotten apple

________________________________________________________________________________

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Want to read about the history of charter schools and vouchers?

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Schneider is a southern Louisiana native, career teacher, trained researcher, and author of two other books: A Chronicle of Echoes: Who’s Who In the Implosion of American Public Education and Common Core Dilemma: Who Owns Our Schools?. You should buy these books. They’re great. No, really.

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2 Comments
  1. Jim Beckham permalink

    It’s important to note that Ben Harris and David Chaney donated almost $10,000 to Governor Stitt’s election campaign. Some Oklahomans refer to Chaney, Harris, and Stitt as the “Three Racketeers”.

Trackbacks & Pingbacks

  1. Mercedes Schneider Dives into the Tax Returns of Oklahoma’s EPIC Charter Fraud | Diane Ravitch's blog

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