Off the charts: Charter-school probes expand

What began as a complaint from a couple of moms more than 18 months ago has mushroomed into a widening federal investigation of at least five Philadelphia-area charter schools, calling into question spending controls and management oversight in this burgeoning alternative to traditional public schools.

Federal authorities are adding resources to the probe, and people familiar with the matter say New Media Technology Charter School, which has campuses in the city's Stenton and Germantown neighborhoods, is the latest charter targeted for spending irregularities and conflicts of interest.

The probe began last year at the Philadelphia Academy Charter School in the Northeast and has led investigators to Germantown Settlement Charter School in Germantown, Northwood Academy in the Northeast, and the Agora Cyber Charter School in Devon, which provides online instruction to the homes of 4,400 students statewide.

A supervisory prosecutor in the U.S. Attorney's Office confirmed that federal authorities had taken a broad interest in charter-school operations.

"We are taking a close look at charter schools - Philadelphia Academy is a good example - and the manner in which these programs spend tax dollars for the education of our children," said John J. Pease, an assistant U.S. attorney who is chief of the government-fraud and health-care fraud unit.

Pease declined to elaborate and said he could not comment - either to confirm or deny - that any other schools were under investigation.

But others familiar with the probes said investigators were reviewing the spending of local, state, and federal money. Though there is no common pattern for the alleged financial irregularities, the expanding investigation has already forced the Philadelphia School Reform Commission and the state Department of Education to tighten scrutiny of charter schools.

Sources who spoke on condition of anonymity said the federal authorities' recent interest in charters was triggered in part by Inquirer revelations about questionable spending at several schools.

The sources said federal officials were concerned that such large amounts of money are controlled by only a few people, a concern heightened by new federal stimulus funding.

Traditionally, such investigations had been conducted chiefly by the Department of Education. But because federal investigators have found what one official called "financial aberrations" at several schools, the FBI and the IRS have been asked to add resources.

An FBI spokesman, Special Agent Thomas Perzichilli, said he could not confirm that the bureau was expanding its effort on charter-school investigations. But he said: "We are working in conjunction with the U.S. attorney, the IRS, as well as the Department of Education, to investigate any fraud or misuse of funds, and we'll follow where these cases lead."

Charter-school critics say the fact that five charters are under federal investigation is proof that these educational alternatives need more oversight. But charter advocates contend that these are isolated cases and do not represent the 67 charters in Philadelphia or more than 60 others statewide.

The federal probe was launched at Philadelphia Academy after The Inquirer reported in April 2008 that the district's inspector general was investigating allegations of financial mismanagement, nepotism, and conflicts of interest at the school.

Since then, Kevin M. O'Shea, the school's former CEO, and Rosemary DiLacqua, the former board president, have pleaded guilty to fraud charges and are set to be sentenced in October.

O'Shea admitted taking more than $500,000, including kickbacks from contractors, using school money to make home improvements, and pocketing money from school vending machines. He also admitted to participating in a scheme to make money in a land deal involving Northwood.

As part of his plea, O'Shea has promised to cooperate.

DiLacqua admitted taking $34,000 in secret payments and loans from O'Shea and Brien Gardiner, the school's founder, and giving them raises and lucrative contracts.

Gardiner, 64, committed suicide in May amid reports that indictments were imminent.

Derek A. Cohen, the assistant U.S. attorney prosecuting the case, said Friday the investigation into Philadelphia Academy and its finances continues.

That probe led federal investigators to look into two other charter schools with close ties to Gardiner: Northwood Academy and Agora Cyber Charter School in Devon. Gardiner founded Northwood and helped found Agora with Dorothy June Brown. He also was her business partner in the Cynwyd Group L.L.C., an education-management firm that has a contract with Agora and that is the school's landlord.

Agora turned over its financial records to federal authorities in response to two grand-jury subpoenas.

The state Department of Education has begun proceedings to revoke the school's operating charter on grounds that the school illegally hired Cynwyd and that the company did little work for the $4.5 million it billed the school.

Brown has denied any wrongdoing, and Agora is fighting the state in Commonwealth Court and federal court.

In Germantown, authorities are trying to determine whether the charter school diverted some of the $31 million in taxpayer money it received over nine years to prop up other nonprofits operated by its sponsor, Germantown Settlement.

The school closed in June after the School Reform Commission denied it a new operating charter because of financial mismanagement and poor academics.

More recently, federal investigators turned their attention to the New Media Technology Charter School amid allegations that school money had been used to pay some expenses of a private school, a restaurant, and a health-food store, according to sources with knowledge of the inquiry. All have ties to New Media's leadership.

The School Reform Commission has twice delayed voting on a new charter to allow its inspector general to complete an investigation.

The commission is scheduled to vote on Wednesday. The district staff is expected to recommend keeping New Media open but with a new top administrator and board.