INDIANAPOLIS — Two Indiana online charter schools that have been under federal investigation over allegations of padding their enrollments inappropriately paid nearly $86 million to companies linked to the schools’ founder or his associates, according to a new state audit report.

The State Board of Accounts review, dated Wednesday, found the Indiana Virtual School and Indiana Virtual Pathways Academy wrongly received $68.7 million in state payments by improperly claiming about 14,000 students as enrolled between 2011 and 2019, even though they had no online course activity.

Daleville Community Schools was the charter authorizer for the two online schools.

Both schools, which had a shared administration and last year reported about 7,200 students, shut down in August after state education officials cut off funding based on initial estimates of $40 million in enrollment overpayments.

Indiana Virtual School was formed in 2011 soon after a Republican-driven state education overhaul that expanded the availability of charter schools, which are privately operated but receive taxpayer funding, and launched the state’s private school voucher program.

The Indiana investigation comes as similar enrollment inflation cases involving online charter schools have happened in Ohio, Oklahoma and California.

Officials in Indiana have disagreed about oversight responsibilities between the State Board of Education, the state Department of Education and Daleville Schools.

Democratic state Rep. Ed DeLaney of Indianapolis said Thursday that oversight obviously broke down, blaming it on Republicans for directing tens of millions of dollars toward online schools then letting them operate under “very thin laws” and little monitoring.

“We outsourced public education to people who stole the money,” DeLaney said. “You want to throw money out in the middle of the street and let people pick it up, the wrong guy’s gonna pick it up.”

Republican Indiana House Speaker Brian Bosma defended the virtual school program and said he had questions about how the inflated enrollment wasn’t caught by the Daleville district or the education department.

“It’s difficult to legislate against conduct that’s criminal and this appears to be criminal in nature,” Bosma said. “Hopefully, the authorities will be pursuing this to the fullest extent of the law.”

The audit report said its findings had been given to federal and state authorities for possible criminal violations. A federal grand jury subpoena to the schools in August was included in documents released last year, but a spokeswoman for the U.S. attorney’s office in Indianapolis said Thursday she could not comment.

The state audit links much of the misspending to Thomas Stoughton, who headed the online schools from 2011 to 2017, and who owned or had business associates that operated about a dozen companies that received school payments with either insufficient or no documentation.

The state audit demands nearly $86 million in reimbursement to the state, although it is uncertain whether any of that money can be recovered.

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