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PA Cyber reviewing its relationship with NNDS

By J.D. Prose for The 5 min read

MIDLAND — The Rochester-based nonprofit National Network of Digital Schools relies almost entirely on the Pennsylvania Cyber Charter School for its revenue, but that lucrative 10-year relationship is now under review against a messy backdrop.Note: p:DAT Dateline EndNote

In September, PA Cyber’s board of trustees approved an agreement to have the consulting company Clarus Group, based in Massachusetts, “review and evaluate” the Midland-based charter school’s management agreement with NNDS, which has received more than $50 million annually from PA Cyber in recent years.

Michael Conti, PA Cyber’s chief executive officer, said in a recent email that he expects a report in December or January. He said Clarus’ task is “to review service levels provided by NNDS in relation to the fees being paid.”

PA Cyber founder Nick Trombetta, who now faces 11 federal criminal charges, created NNDS — one of several spinoffs from the cyber school — in 2005 to provide management services and curriculum to PA Cyber and other online schools.

Two years later, Trombetta had PA Cyber convey its own Lincoln Interactive online curriculum to NNDS, which, in turn, has leased it back to PA Cyber under a contract that initially paid NNDS a 12 percent fee based on PA Cyber revenue.

As PA Cyber’s revenues have mushroomed over the last decade, the deal has netted NNDS hundreds of millions of dollars. According to the latest available Form 990 filed by NNDS for 2012, it received nearly $51 million from PA Cyber for curriculum and management services, nearly 88 percent of NNDS’ total reported support of $58 million that year.

For 2011, NNDS collected $52.2 million from PA Cyber, which has annual revenue exceeding $100 million. Last school year, PA Cyber paid NNDS $53 million, Conti said.

Conti said the 2013-14 payment for curriculum accounted for about $38.2 million. with managed services coming in at $14.8 million, which included a handful of NNDS employees working in PA Cyber’s business office.

Setting a tone

Over the years, PA Cyber and NNDS have also shared board members and employees, some of whom also ended up at Avanti Management Group, a now-defunct Koppel group that plays a role in Trombetta’s criminal case.

Avanti’s former chief executive officer, Brett Geibel, a former PA Cyber official, and its president, Jane Price, who worked at all three outfits, became informants for the federal government against Trombetta.

Bob Clements, who earlier this year replaced Mark Elder as the head of NNDS, described PA Cyber’s re-evaluation as “a standard review.” Clements said NNDS has made a more competitively priced bid, so he’s not worried about the future of NNDS’ relationship with PA Cyber.

Clements said PA Cyber has probably saved money over the long run by contracting with NNDS, compared with what the school would have spent over the years on employees to perform the managed services, such as business operations, marketing and information technology, provided by NNDS.

PA Cyber has sought bids for kindergarten through 12th-grade curriculum and student learning management systems; marketing and public relations services; facilities, safety, maintenance and warehousing services; technology support; and business support services.

The decision to re-evaluate the relationship came several weeks after NNDS sued its former senior manager of secondary curriculum, Holly Fritz, claiming she stole proprietary information when she quit and took a job in May with PA Cyber as its director of secondary curriculum.

Fritz’s husband, Alan, is PA Cyber’s chief academic officer. In September, Holly Fritz was fired by PA Cyber, but Conti has said it was because of performance issues and unrelated to the lawsuit still pending in Beaver County Court.

Conti said in an interview in October that the decision to review PA Cyber’s relationship with NNDS was unrelated to the lawsuit. Instead, he said the decision was part of the school’s ongoing effort to review its operations and burnish its image after Trombetta’s federal indictment, which includes charges of mail fraud, theft, tax conspiracy and filing false tax returns.

“It was important to demonstrate to the (state) Department of Education and the public that we get the best products and services at the best possible price,” Conti said. “I felt that it was important that we set a tone.”

Growing apart

Clements also said NNDS has restructured in the wake of the Trombetta case. Mark Elder — the son of PA Cyber board of trustees chairman Ed Elder — was removed as chief executive officer of NNDS and was named its assistant vice president of corporate and government affairs to avoid “perceived conflicts of interests,” Clements said.

While NNDS and PA Cyber are basically Trombetta-created siblings, Clements said their futures won’t necessarily be intertwined as much as in the past. “We may have grown out of the same embryo, but we are headed in a different direction and trying to grow the company,” he said.

In the aftermath of Trombetta’s indictment, and with every news account on his case mentioning his connection to PA Cyber, Conti said it is vital to retool the school’s image with the public and legislators, who are considering charter school reform initiatives.

“I want to lead PA Cyber into a new beginning,” Conti said, “where it can rebuild its reputation.”Note: p:BCJ Body Copy Justified EndNote

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