Profitable Non-Profit Education

Charter schools are essentially non-profits who often hire for-profit companies to handle their finances and operations. A few years ago, auditors found that most revenue from the non-profit Buffalo United Charter went to a large management firm called National Heritage Academies (NHA) and the board’s involvement in running the school was almost ceremonial. This has caused ripples in the education world and this tradition of ‘sweeps’ contract, where almost all of the tax payers’ money is swept into a private management company, is brought into light for the first time. The public concern regarding surrendering responsibility of charter schools to private management is mostly about how these companies are not legally obligated to act in the best interest of the taxpayers.

The money is likely to be spent irresponsibly and unfortunately, more often than not, that is the case with most of these firms. For companies like National Heritage Academies, their relationship with public-funded institutions can conveniently pave the path to steady profits for themselves. Buffalo United’s board defended their decision to place faith on an external firm by saying that having someone else taking care of operational tasks, the board members can focus on fundraising. They also asserted that National Heritage Academies fully adhered to all state and federal laws, academic regulations and authorizer oversight requirements and all this was done under full transparency.

While the partnership between schools and such companies are under scrutiny, sweep contracts themselves haven’t received much attention and as of today, are not widely monitored. It is mostly because regulators or even the schools themselves do not have much access to the accounts of private companies. Alex Medler of the National Association of Charter School Authorizers says that this is an issue that requires immediate attention since sweep contracts demonstrate a blatant inefficiency in fulfilling public function and in some cases, a series of questionable spendings.

The auditors noticed inexplicable charges in terms of rent and equipment costs in the case of Buffalo United and NHA, but were unable to verify these suspicions or satisfactorily account for the school’s $10 million spending because they were denied access to the financial books of NHA. The auditors could do nothing more than issue ‘advisory recommendations’ on the matter since most of the audit process remained incomplete.

In the past few years there have been situations where the charter schools have pushed their management companies for more transparency, including the case in 2010 where 10 charter school boards sued the management firm, White Hat Management, when it refused to disclose basic information about expenditures. Heeding from these examples, some charter schools now understand the implications of their limited access and are beginning to push for more authority for its regulators. Unfortunately, the management firms are putting up an even stronger fight and so far, the dynamics have not changed particularly in favor of charter schools across the nation.