Last summer, as two large Indiana virtual charter schools collapsed under the weight of fraud allegations, a small new online program made its debut.

Indian Creek Online Academy was launched by a 2,000-student district south of Indianapolis experimenting with new ways of reaching students.

Officials with the Nineveh-Hensley-Jackson district said they wanted to avoid the mistakes of the troubled virtual schools. But they also picked an outside management company whose leader had a history with those very institutions, Indiana Virtual School and Indiana Virtual Pathways Academy.

Businessman Gar Hoover, the head of Indian Creek Online Academy’s management company, had previously served as chief operating officer for AlphaCom, a company accused in the $86 million alleged enrollment fraud and self-dealing scheme at the two virtual charter schools.

A state auditors’ investigation released earlier this month alleges that Hoover, who also served as a board member for Indiana Virtual School, signed off on a request for more than $96,000 in state funds based on inflated enrollment numbers. He’s listed as one of the parties personally responsible for repaying that amount, plus the cost of the auditors’ investigation.

A federal investigation has been launched into the fraud allegations. It is unclear whether Hoover’s role is included in the investigation.

Nineveh-Hensley-Jackson Superintendent Tim Edsell said he asked about Hoover’s history at Indiana Virtual School before the district contracted with his new company, American Online Education Services.

But Edsell wasn’t aware that Hoover was named in the state auditors’ investigation until contacted by Chalkbeat. After Chalkbeat sent him the state’s report, Edsell said he opened an internal investigation with the district’s legal counsel into Hoover’s connections to the virtual charter schools.

“I do have concerns,” Edsell said. “I want to be very thorough and comprehensive and accurate in our review.”

Edsell also didn’t know that Hoover had brought in a subcontractor with several other former employees from the web of companies paid millions in public dollars to operate virtual schools that served far fewer students than they received money for.

Some critics and experts say the arrangements raise serious questions about how these new companies were vetted to run another publicly funded online venture — and whether taxpayers can trust that Indian Creek Online Academy won’t repeat the mistakes of the now-shuttered virtual charter schools.

“Why go with people who came out of that network just so easily, especially if there’s an ongoing investigation?” said Diane Swanson, chair of the Business Ethics Education Initiative at Kansas State University. “That’s a huge red flag.”

In an interview with Chalkbeat, Hoover said he was not involved in the troubled virtual schools’ enrollment or finances, and he said he eventually left AlphaCom because he disagreed with the way the now-shuttered virtual schools were being managed.

“There’s nothing I need to hide or want to hide,” Hoover told Chalkbeat. “There’s nothing illicit going on.”

Indian Creek Online Academy, which enrolled about 60 students this fall in grades 6-12 and grew to more than 120 students this month, is specifically intended to remain small, officials said. They hope this will avoid the problems experienced by the other virtual schools, since the program won’t be drawing big pots of state dollars or be large enough to lose track of how many students are legitimately enrolled.

“Our vision and desire is to make sure that we are providing an alternative way for students to learn,” Edsell said. “We’re not doing it to make money.”

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It was Hoover who had approached Nineveh-Hensley-Jackson officials about starting a virtual school. When the district was poised to approve a contract with Hoover’s company in July, the veil had already been pulled back on the problems at Indiana Virtual School and Indiana Virtual Pathways Academy.

The two schools were on the verge of closure after their authorizer and state auditors had revealed initial findings that officials had inflated enrollment for several years by counting on their rolls students who no longer or never attended — including, in one case, a student who died.

State education officials ordered the virtual schools to repay millions in funding they never should have received. But according to this month’s audit, it appeared the funds had already been funneled to a web of connected companies tied to school officials, purportedly to provide services.

The state investigation traced the network of private companies and found, in addition to conflicts of interest due to the businesses’ ties to school officials, that the schools weren’t properly documenting payments to those businesses and sometimes paid for duplicative services.

Hoover served on the Indiana Virtual School board from 2015-16, then went on to work for one of those companies running it: AlphaCom, which had been started by Indiana Virtual School’s founder and is responsible for $14 million in misspending, according to the state investigation.

As COO, Hoover was tasked with strategy but said he butted heads with top officials over their plans for the two troubled schools. He wanted to improve quality and hire more teachers, and offered to help run the business and finance sides.

Those ideas eventually got him demoted, Hoover said. Chalkbeat could not reach other Indiana Virtual School officials for comment.

“If my vision had been implemented, you wouldn’t have seen some of these things,” Hoover said.

Hoover said he was kept out of the inner circle and decision-making. He heard rumors, he said, of questionable practices, and was skeptical when the schools’ enrollment rocketed to more than 6,000 students.

He helped launch Michigan Online School, a sister school to Indiana Virtual School that for a time used the same superintendent and contractors. He eventually left AlphaCom in 2018, he said, and continues to run the Michigan school.

At Nineveh-Hensley-Jackson, Edsell said he asked about Hoover’s connections to the beleaguered schools and was satisfied when Hoover said he wasn’t involved.

“What I can tell you is that the work with us has been very transparent, very up front,” Edsell said.

What Edsell didn’t know, however, was that Hoover is also working with several other former employees with ties to the troubled virtual schools.

A subcontractor, KJH Innovations, provides mentors and technical services to Indian Creek Online Academy. It is led by Josh Headlee, a former executive of Bitloft, a company that the state auditors’ investigation lists as being responsible for $18 million in misspent funds.

Headlee said he was in charge of information technology services at Bitloft and wasn’t involved in the enrollment inflation or inappropriate spending.

“I started KJH because I wanted to operate my own business in a compliant, ethical and proper manner,” Headlee wrote in an email to Chalkbeat. His new company also employs others who used to provide services to the troubled virtual schools.

When asking the district about those ties, a Chalkbeat reporter pointed Edsell to the bottom of Indian Creek Online Academy’s website, where a line reads: “School services provided by KJH Innovations, LLC.”

“I’ll have to check into it,” Edsell said.

The ties to Indiana Virtual School raise red flags, experts say, when taxpayer dollars are on the line. It isn’t flatly inappropriate for Hoover and Headlee to stay in the online education business, but their backgrounds should draw more scrutiny.

Nineveh-Hensley-Jackson officials may have considered holding off on the online partnership until the investigations played out, said Swanson, who teaches corporate social responsibility and public policy at Kansas State — or pumped the brakes when it became clear, a month after the contract was signed, that the FBI was investigating the virtual charter schools.

The release of the state auditors’ investigation report identifying Hoover as a responsible party also raised another opportunity for the district to further review the ties. Because Hoover and Headlee’s roles involve taxpayer money, they deserve heightened scrutiny, Swanson said.

“There should be no unearned trust given. … These spin-offs came out of a network that the state has already said misused $86 million of taxpayer money,” Swanson said. “Doubling down on them now in anticipation of warding off any problems would be rational.”

One Indiana lawmaker raised questions over how the companies were vetted and called for more transparency, accountability, and oversight of educational vendors.

State Sen. Eddie Melton, D-Gary, said people with ties to Indiana Virtual School and Indiana Virtual Pathways Academy should “absolutely not” be allowed to run another publicly funded online school.

“I think what the State Board of Accounts report is showing us should be enough, in terms of determining anyone affiliated or associated with those programs and administering it shouldn’t be eligible for any additional contracts,” he said.

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Nineveh-Hensley-Jackson is keeping a close watch on Indian Creek Online Academy, Edsell said.

Unlike the Daleville district that sponsored Indiana Virtual School and Indiana Virtual Pathways Academy, Nineveh-Hensley-Jackson officials say they have a more hands-on approach — and more access, because the online program is part of the district instead of being an independently run charter school.

“We have a whole lot stronger level of oversight,” Edsell said.

Hoover’s company, American Online Education Services, handles the programming at Indian Creek Online Academy, but the district still has to provide oversight, Edsell said. The district’s business manager reviews financial reports, its testing coordinator looks over exam plans, its data reporting official looks over numbers, and its assistant superintendent acts as principal since Hoover doesn’t hold a school administrator’s license.

“In the Indian Creek district, those folks over there, they want a serious operation,” Hoover said. “They don’t want to be in a situation where they could be at harm or put themselves in any way, shape, or fashion.”

Nineveh-Hensley-Jackson also oversees a part-time virtual charter school. Indiana Agriculture and Technology School had originally intended to be an all-online school, with a farm for in-person lessons. But the charter school switched to a hybrid model when state officials raised questions about Nineveh-Hensley-Jackson’s ability to oversee an all-online program.

So far, Indian Creek Online Academy has received about $180,000 in state funding, according to information provided by Edsell. The school doesn’t receive per-pupil funding directly — it flows through Nineveh-Hensley-Jackson. The district retains 5% for administrative costs, though Edsell said it hasn’t yet spent those funds.

Nineveh-Hensley-Jackson assistant superintendent Andy Cline, who observes the district’s other classrooms, added the online school to his rounds. Before the end of December, 77% of students were on track to finish and pass their classes, he said — about on par with how students perform in the district’s alternative program.

In the first semester, five students graduated and six students were withdrawn for being inactive.

“Look, you gotta be active in our classes,” Hoover said. “You can’t be a ‘ghost’ student. You can’t not do anything. We can’t have students like that.”

Online school, Hoover said, isn’t for everyone. He wants serious students who have the self-discipline to work through the coursework, which is provided through the national online education company Edmentum. Edmentum supplies the teachers, too.

Success at Indian Creek Online Academy might mean students don’t stay for long. The goal is to help them where they are right now, Hoover said, even if that means simply building up their confidence to return to brick-and-mortar schools.

Hoover’s management company is a for-profit business, and he said he expects to make some money from running the online school: “It’s not large, but we’ll make some.”

“We want to run a good, quality operation,” Hoover added. “If you run services, you’re not going to get rich.”

Chalkbeat reporter Koby Levin contributed to this report.