Pa. auditor general: Cyber school spent millions on management firm, arts center tied to founder

HARRISBURG - The state's largest cyber charter school paid millions of taxpayer dollars to a management company, an arts center, and other entities tied to the school's founder, according to Pennsylvania's fiscal watchdog, who called again for an overhaul of what he called the nation's worst charter law.

Auditor General Eugene A. DePasquale on Thursday detailed what his office found in a sweeping performance audit of the Pennsylvania Cyber Charter School in Midland, Beaver County, the related Lincoln Park Performing Arts Charter School, and the Midland Borough School District.

"Our audits of PA Cyber, the Lincoln Park Performing Arts Charter School, and the Midland Borough School District illustrate again just how poorly our charter-school law is," DePasquale said at a news conference. "We found that leaders involved with all three of these schools had intermingled relationships that put individual self-interest above student needs while controlling hundreds of millions of dollars in taxpayer education funds from nearly every district in the state."

The PA Cyber audit, which covered the period from May 13, 2011, through March 11, 2016, found eight areas of concern. DePasquale's office flagged two concerns at Lincoln Park and at the Midland district, including transactions with related entities.

One of the central issues at PA Cyber was that its board provided little oversight of business transactions involving Nick Trombetta, the cyber charter's founding CEO; board members; family members; and related entities.

The cyber school enrolls nearly 10,000 students from across the state who receive online instruction in their homes. During the 2013-14 school year, PA Cyber received more than $118.6 million from the 484 school districts where its students reside, including many in the Philadelphia region. Philadelphia had 425 students enrolled that year - the most of any district in the state.

"Because of the inordinate number of related-party transactions, the board and the administration had an even greater duty to govern all aspects of the cyber charter school's management, but it failed to do so," the 91-page report said.

Among other things, a nonprofit management company, which Trombetta founded in 2005, was the cyber charter's largest vendor. DePasquale's office said the company was paid, on average, $51.3 million annually over the course of three years to provide curriculum, management, and other services. Initially, the agreement contained no terms or conditions.

Trombetta, who stepped down as CEO of PA Cyber in 2012, also founded the performing arts charter school in Midland and the Lincoln Park Performing Arts Center. His arts-center entity does business with both schools and the Midland district.

DePasquale said his team found that Midland had a $1.5 million balance on a long-term prepaid lease to use the center for arts classes and events, but that the district showed evidence of only limited use of that space. He said the district also rents out its gymnasium and six classrooms to the Lincoln Park charter school.

"There is a lot of public money changing hands between these entities, but very little tracking of how that money is benefiting the kids," he said.

Trombetta, 61, who also is a former superintendent in Midland, and his accountant were indicted by a federal grand jury in 2013 on 11 charges including mail fraud and tax evasion.

Last month, Trombetta pleaded guilty in federal court in Pittsburgh to a count of tax conspiracy in connection with a scheme to siphon $8 million from the cyber school he founded. He is to be sentenced in December.

In its response to DePasquale's report, PA Cyber disputed many of the findings.

It said the school's board had "instituted a robust conflict-of-interest policy."

The school also said that it had been reviewing existing contracts with the management company and that any renewals would be "achieved via an open and public process."

The Midland district and the Lincoln Park Performing Arts Charter School also disagreed with the report's findings and said they had not engaged in transactions with related third parties.

"While we adamantly disagree with Auditor General DePasquale's two findings regarding Lincoln Park Performing Arts Charter School, we wholeheartedly agree with his desire to make schools more accountable to taxpayers," chief executive officer P.K. Poling said in a statement.

"No school in Pennsylvania strives harder regarding accountability than Lincoln Park," Poling said.

Robert Fayfich, executive director of the Pennsylvania Coalition of Public Charter Schools, said his organization agreed with DePasquale that abuses of the system must be eliminated and that the charter-school law must be changed.

"Where we take exception to the report is the focus on almost decades-old information in some cases and failing to recognize changes and improvements that PA Cyber has made in the past few years," Fayfich said.

PA Cyber, which opened in 2000, has not met the state's benchmarks for academic achievement.

The state Department of Education, which oversees cyber charter schools, has not acted on the school's application to have its operating charter renewed. The request was filed in 2014.

martha.woodall@phillynews.com215-854-2789 @marwooda