by David Safier
The story I wrote about last night — Steve Yarbrough's Student Tuition Organization and the expenses it claims — is in the Star and the Republic today. Jen Darland and Lisa Hawkins, both from Tucson, held a press conference in Phoenix on the topic Monday, and both papers covered it in reasonable detail. They brought out some facts I didn't use, and I made some connections they didn't make.
The story isn't over. I plan to post about it for awhile.
Right now, I want to focus on one aspect: the amount of money Yarbrough's Arizona Christian School Tuition Organization (ACSTO) paid to HY Processing, a corporation also owned by Steve Yarbrough. In 2006 and 2007 (not coincidentally, HY Processing was incorporated in late 2005), ACSTO has paid HY about $400,000 per year. The year before that, in 2005, ACSTO listed its data processing expenses as $24,440.
To get a sense of the kind of processing expenses an STO should incur, you need to understand what an STO does. First, it collects contributions from indivuals, a maximum of $500 per individual or $1,000 per couple. The contributors get 100% of the money back as a tax credit, but the STO doesn't handle that part. It simply banks the money. Then it receives scholarship applications from families who want financial help sending their children to private schools. Finally, it decides how much to give each student, and it dispurses the money.
That's an oversimplification, of course, but not by much. Running an STO is far from rocket science. You take in money, you get requests for the money, you give out the money. The process involves careful record keeping, but the transactions are far fewer and simpler than in most businesses. A simple database run by a few competent employees should be able to do the job nicely.
So how is the $400,000 Yarbrough's STO gives to Yarbrough's HY Processing spent? It's far more than I've seen on the tax forms of any other STO for data processing. In fact, it's about 15 times higher than the $24,440 listed for ACSTO's data processing in 2005, the year before Yarbrough incorporated HY Processing. It simply can't cost that much to process the data.
With data processing, there are obvious economies of scale. Once you've set up a system to process $5 million, it doesn't cost twice as much, let alone 15 times as much, to process $10 million. The cost per dollar should go down, not up.
Has HY Processing gotten heavily involved in the fundraising aspect of ACSTO? That could account for higher expenses, since a more aggressive fundraising campaign would cost more money. But according to the 2007 breakdown on ACSTO's tax return, HY's fundraising-related duties are minor. Of the $426,895 designated as "Processing Expenses," $397,012 are listed under the "Program Services" heading, $21,345 are under "Management and General" and only $8,538 are under "Fundraising."
I ask again, how can ACSTO spend over $400,000 a year in processing expenses? It simply doesn't make logical sense. Unless Yarbrough can come up with a reasonable explanation and back it up with facts and figures, it will continue to look to me like Yarbrough's HY Processing is charging Yarbrough's ACSTO far more money than it should for its services. Something looks very wrong here.