Report: Indiana’s School Funding System Is Inherent Risk

An investigation by the Indiana State Board of Accounts into alleged fraud by two shuttered virtual charter schools found weaknesses in state code that make it difficult to ensure accurate student enrollment counts.

Earlier this year, the state accused leaders at Indiana Virtual School and Indiana Virtual Pathways Academy of fraudulently collecting nearly $70 million in tax dollars by inflating student enrollment numbers for years. A federal investigation is ongoing.

A review of the two schools found more than 8,500 students were improperly included in enrollment counts during 11 years. Of those students, there were 4,706 instances where students completed no courses.

The State Board of Accounts special compliance report released in August focused on how Indiana’s funding of public schools is calculated based on a school district or charter school enrollment, also referred to as average daily membership (ADM). This student count takes place in the fall and spring of an academic year.

The report described the state’s per-student funding formula as an “inherent risk” because it “incentivizes a school corporation to increase” enrollment. The higher the student count, the more state funds a school receives.

The 24-page report found a lack of controls to verify the accuracy of enrollment data submitted by local schools to the state. It also addressed methods the report’s authors say could be used to identify possibly incorrect ADA data.

“Our procedures were not designed to identify all instances of noncompliance or control deficiencies; therefore, noncompliance or control deficiencies may exist that are unidentified,” State Examiner Paul Joyce wrote in the report.

In one example, the report pointed out the Indiana Department of Education does not conduct “basic verification checks” of local school attendance data. The report said properly vetted attendance data could show signs of concern around a school’s enrollment and “could have served to indicate invalid ADM reporting.”

Indiana Virtual School reported a 100 percent attendance rate for 2012-2013 and five consecutive academic years between 2014 and 2019.

“A review of reported information was not conducted to determine the reasonableness of the attendance data reported,” the report said.

The Indiana Department of Education responded to the SBOA that it’s not required to verify the data, but said it will increase the review of student attendance submissions in the future.

“IDOE would never expect a school that was accurately reporting attendance would report at 100%,” the department wrote in a response to SBOA. “Regardless of definitions and whose duty it is to validate the data, 100% attendance is a figure that likely should have raised the
attention of state officials.”

The report also identified how using multiple sets of data schools are required to submit to the Indiana Department of Education, such as student course completion and enrollment, could identify potential errors in student counts. For example, a student reported in the fall ADM count but completed no courses could be “identified as a potential error” in the spring count, the report said.

But it was found that the Indiana Department of Education does not have course completion data for all schools “despite IDOE’s policy and practice of making multiple requests of noncompliant school corporations.”

The SBOA made other suggestions on how to confirm student enrollment, such as using utility bills to verify addresses of students submitted to schools.

The Indiana Department of Education response, included in the report, raises concern about the resources or capacity to even audit a sampling of the 1.13 million student records collected annually to support state funding allocations

Adam Baker, the department’s spokesman, said the audit and report is appreciated.

“We believe they identify concerns and potential vulnerabilities in our statutory framework, and since the report’s release, we have been in collaboration with SBOA to determine what steps we can take, administratively speaking, to shore up our current systems in place,” he said in a statement.

Another SBOA special report released in August, found Daleville Community Schools — the school district that authroized the virtual charter schools — should repay $2.2 million in state funds connected to the inflated student enrollment. SBOA said Daleville did not independently verify enrollment counts related to fees it received from the virtual charter schools, nor did the district submit invoices for the fees to be paid.

It remains to be seen if lawmakers will take up any of these reporting concerns in the 2020 General Assembly. Indiana’s next schools chief, who leads the education department, will be appointed by the candidate elected governor in November.

Contact WFYI education reporter Eric Weddle at eweddle@wfyi.org or call (317) 614-0470. Follow on Twitter: @ericweddle.

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