Does it matter if Yarbrough is skimming a few dollars off the top?

by David Safier
If you read my post just before this one, you know I'm skeptical about a company Yarbrough set up, HY Processing, charging his STO about $400,000 a year for data processing. I've looked at the tax returns of a few other large Student Tuition Organizations, and none of them list any expenses related to information processing anywhere near six figures. In fact, Yarbrough's ACSTO only listed $24,440 in Processing Expenses on its 2005 tax return. But in late 2005, Yarbrough created HY Processing, and in 2006, ACSTO's processing expenses are listed as 15 times higher than they were the previous year.

Does this matter? If Yarbrough is making a little extra money — or a lot of extra money — from his STO, is that worthy of anything more than moral outrage? The answer is, maybe so.

I don't know much about STO finances, but I know a fair amount about charter school finances. And I know, if you're less than reputable and want to make some extra cash from your charter school, there are two things you can do. You can give yourself an inflated salary and maybe hire some family and friends who you pay high salaries for little work. And you can create companies that sell goods and services to the charter school at inflated prices. If you're caught, you can be in real trouble.

Here are two examples I've written about in the past.

C. Steven Cox ran 60 charter schools in California. According to the 112 felony counts against him, he had family and others on the payroll, getting hundreds of thousands of dollars for doing little work. And he set up three companies that did business with his charter schools. One company charged the schools 13% of their funding for administrative services which other companies offered for 2-7%. Another of his companies bought textbooks from suppliers, then sold them to the schools at a 50% markup. A third company sold insurance to the schools at twice the going rate. Before the schools collapsed under their own weight, Cox had illegally funneled over $5 million to his three businesses.

Earlier this month, I wrote about Agora Cyber Charter School in Pennsylvania which is under investigation by the Pennsylvania Department of Education.

The state of Pennsylvania has stopped making payments to Agora until the investigation is concluded, since it doesn't want any more money to disappear down that same rat hole.

Making payments to companies that don't do enough work to justify the money is serious stuff. I don't know if Yarbrough has paid his company more than its services are worth. It may be the payments from Yarbrough's ACSTO to Yarbrough's HY Processing are perfectly legit, though for me, they don't pass the smell test. But just because he's a Republican State Rep in a Republican controlled state government, he should not be immune from having to explain his expenses. As the saying goes, if he's done nothing wrong, he should have nothing to hide.