School sailed past the system
DAVID WICKERT; The News Tribune
Its finances were shaky. Its graduation and job-placement rates were substandard. Its students filed lawsuits and complained.
Regulators saw the warning signs. But the Business Computer Training Institute remained open for years, and taxpayers continued to pay millions of dollars to support a school that hundreds of students say defrauded them.
BCTI, a Gig Harbor-based for-profit vocational school, closed last year amid government investigations and a student lawsuit. But government records show the school had a history of run-ins with regulators stretching back more than 20 years.
In the 1990s, federal officials twice threatened to stop funding BCTI, citing financial problems and high default rates on student loans.
A private accrediting agency doubted the quality of BCTI programs as far back as 2001.
Washington state officials dismissed student complaints similar to those now made by more than 400 students in a lawsuit in Pierce County Superior Court.
In each case, BCTI and its co-presidents, Tom Jonez and Morrie Pigott, evaded serious consequences – sometimes with the help of elected officials.
“These people were pros at skirting the law and skirting the ethics,” said Phil Rockefeller, a former U.S. Department of Education supervisor and now a state senator from Bainbridge Island. He oversaw one federal investigation of BCTI.
Critics of for-profit education aren’t surprised regulators failed to sanction BCTI. Though the industry has made it easier for many students to get an education, critics say regulators do a poor job of policing it.
For-profit colleges and vocational schools have drawn complaints from coast to coast. In the South Sound alone, several for-profit schools have come under fire recently:
• More than 80 students claim Bryman College misled them about a medical assistant program’s accreditation status, their eligibility to take a national certification exam and other issues. Most of the claims, which involve Bryman’s Tacoma and Renton campuses, are in arbitration. Others are in federal court.
• Eleven students have sued Tacoma’s Crown College, which offers criminal justice, business and other degrees. The students claim the school misled them by saying their credits would transfer to traditional nonprofit colleges, though for the most part they do not. The school lost one lawsuit and settled two others.
• Last year, 10 Washington students complained to the state about the Court Reporting Institute, which had campuses in Seattle and Tacoma. Among other things, they cited poor instruction and misleading claims that they’d graduate in 30 months.
A state agency found hundreds of students paid thousands of dollars for a program they would never complete. It tried to shut the institute down. In August, the school closed all of its campuses.
• Last year the state revoked the license of Go2cert, a computer school with campuses in Federal Way and Everett, because it failed to give refunds to students who withdrew.
Regulators say problem schools are the exception, not the rule. But a look at the way regulators handled BCTI raises doubts about whether they’re protecting students and taxpayers from the troubling exceptions.
Barmak Nassirian, who works for a national college administrators group, reviewed BCTI’s regulatory history for The News Tribune. He said he can see why individual concerns were dismissed. But taken as a whole, he said BCTI’s record paints a troubling portrait of the school and regulators.
“I think we could now say this was not a good school,” Nassirian said.
“After the fact, it’s obvious they were all wrong,” he said, referring to regulators. “In real time, this goes on all the time.”
The Business Computer Training Institute ran afoul of the U.S. Department of Education as far back as 1993.
Like many for-profit vocational schools, much of BCTI’s income came from federal financial aid programs for college students. Up to 88 percent of the school’s revenue – as much as $18 million a year – came from those programs.
In 1993, Department of Education investigators suspected BCTI was padding the length of its classes so students would qualify for more financial aid.
BCTI had expanded its programs from 10 and 12 weeks to 20 weeks. But department investigators examined 60 student files and found none of the students attended classes for more than 17 weeks.
“To me, this looked like, feels like fraud,” said Rockefeller, a former employee in the agency’s Seattle office. “It felt phony to me. It looked like padding.”
Rockefeller supervised the investigation of the class-length issue. His investigators concluded BCTI did not offer a genuine 20-week program. They found the school and its students received $1.8 million more than they were entitled to.
The department also had concerns about BCTI’s financial condition.
Federal records show BCTI’s current liabilities exceeded its current assets in 1992. That was a violation of a federal law that protects students and taxpayers from financially unstable schools.
For months, BCTI resisted turning over its 1992 financial statements. Records show the school was feuding with its accountant over the statements.
When the Department of Education threatened to sanction the school, it turned over the statements that revealed its financial condition. The department demanded BCTI post a bond or a letter of credit. The school did not respond, and the agency notified BCTI it would cut off its student aid. BCTI’s primary source of income would disappear.
Between the financial violation and questions about BCTI class lengths, the department seemed poised to shut down the school.
BCTI defended itself aggressively.
In letters to the Department of Education, school officials blamed BCTI’s troubles on uncertainty over new regulations.
They said the timing of the regulations led to “a near catastrophic cash-flow crisis,” forcing drastic program and staff cuts. They said they acted in good faith with the best information available. They revised BCTI’s courses to address questions about class lengths.
They also enlisted the help of elected officials.
Department of Education records show an aide to then-Sen. Slade Gorton called the agency’s Seattle office seeking an explanation of BCTI’s class-length problems.
Rep. Norm Dicks wrote a letter on BCTI’s behalf. He said the class-length issue had “been a source of confusion and possible detriment” to BCTI. A Dicks staffer followed up with a fax seeking additional information.
Gorton said he has “not the slightest memory” of working on BCTI’s behalf and said his staff would not have brought the matter to his attention. He said an inquiry would be an automatic result of any constituent complaint.
Dicks spokesman George Behan remembers helping BCTI but described it as a routine intervention.
It’s unclear what effect, if any, Gorton and Dicks had on the investigation. Before Dicks wrote his letter, the Department of Education already was backing down.
In February 1994, the agency decided to withdraw the class-length finding, citing an apparently new policy for calculating the length of classes.
A few months later, the department notified BCTI it was back in compliance with financial requirements.
Federal records don’t indicate why Department of Education officials changed their mind about BCTI’s financial condition. A statement given to The News Tribune by BCTI attorney Thomas Merrick said only that department officials decided not to terminate the school’s funding “once they were provided with the information they requested.” It said BCTI “was not at risk.”
Department records show Seattle investigators were surprised by the policy that forced them to back down from the class-length investigation.
Merrick’s statement said material published by the department’s own training division showed BCTI’s methods for disbursing financial aid were correct.
Rockefeller has a different interpretation of events.
He said department attorneys in Washington, D.C., agreed his team had a defensible case. What the attorneys and the investigators didn’t know was that a midlevel department manager apparently changed the policy just days after investigators toured BCTI in July 1993.
Records show Pam Moran, the chief of the department’s student loan division, discussed the policy in a telephone conversation with a representative of a well-connected Washington, D.C., law firm that represented for-profit colleges.
The conversation took place July 27. Department investigators finished their visit to BCTI on July 15.
Later, in an internal memo, Seattle investigator Richard Nelson cited the Moran letter in withdrawing the charge against BCTI. In that memo, Nelson expressed his hope that the agency would strengthen its rules to prevent the kind of “abuses” uncovered at BCTI.
Rockefeller took another department job and retired before the BCTI case was resolved. He didn’t know how it turned out until he reviewed records obtained by The News Tribune.
He said what he read was “astonishing.”
Withdrawing a finding after an investigation was over was unusual, he said. He also called Moran’s telephone conversation with the law firm “an astounding way to make policy.”
The letter documenting the phone call between Moran and the law firm does not mention BCTI. But Rockefeller is convinced “it’s all about BCTI” because of the timing.
He believes BCTI officials knew about the policy that would save them long before investigators.
“We had a knife stuck in our heart here without even knowing it,” Rockefeller said. “We thought we had them.”
In response to questions e-mailed to Moran, Department of Education spokeswoman Stephanie Babyak wrote:
“We are unable to comment on actions taken more than 10 years ago when the laws and rules for the student aid programs were significantly different.
“We are not going to comment on what someone else speculates happened at that time.”
More warning signs
Two years later, in 1996, the Department of Education again threatened to cut off federal aid to BCTI.
For three consecutive years, more than one-quarter of BCTI students defaulted on taxpayer-backed loans – a violation of federal law and a sign that students weren’t finding gainful employment. In 1993 alone, 831 BCTI students defaulted, according to a 1996 report in the Seattle Post-Intelligencer.
In response, the department briefly cut off federal aid to BCTI in 1996.
School officials appealed the decision. They blamed the high default rates on an independent loan-guarantee agency that for 19 months failed to notify BCTI that many of its students were in default. School officials said that prevented them from contacting students about the loans.
BCTI also contended 76 students were erroneously counted as being in default.
Once again, BCTI enlisted the help of elected officials, including Dicks and Sen. Patty Murray.
Behan said Dicks worked with a law firm hired by BCTI – Bryan Cave – to convince the assistant secretary of education to revise the school’s default rates in light of the errors.
The department relented.
David Longanecker, then an assistant secretary of education, told The News Tribune the department at that time was cracking down on more than 1,000 schools because of high default rates. Many appealed and many turned to elected officials for assistance, he said.
But Longanecker remembers the BCTI case because the basis for its appeal was unusual. He said the guarantee agency admitted it made a mistake that prohibited BCTI from contacting students who were on the verge of default.
He said the school might have been able to intervene with those students to prevent defaults. That convinced Longanecker that BCTI had a legitimate concern, and its default rate should be lowered.
But he acknowledged his staff did not agree.
Citing the school’s high default rate, “they said that this was not a good institution,” Longanecker said.
Though Longanecker was a political appointee accustomed to discussions with elected officials, he said the department’s career staffers “want a system where there’s no intrusion and they can give their professional judgment.”
“I don’t think this is a great institution doing great work,” he added.
Murray spokeswoman Alex Glass confirmed Murray intervened on BCTI’s behalf, but couldn’t provide details.
Behan said Dicks doesn’t regret intervening to help BCTI. He said the issue in 1996 was that the Department of Education was not treating BCTI fairly. If BCTI had closed, many students would have been harmed, Behan said.
The Department of Education never withdrew BCTI’s eligibility for federal funds despite other warning signs:
• Beginning in 1993, 90 BCTI students in Oregon sued the school. Among other things, they claimed BCTI officials misled them about their job prospects and the wages they would make after graduation. The claims were similar to those Washington students would make a decade later.
Though BCTI denied wrongdoing, it settled the Oregon students’ claims, court and government records show. Records show the U.S. Department of Education knew about at least one settlement, which was disclosed in BCTI’s financial statements in 1998.
The statement issued by BCTI attorney Merrick said the lawsuits were filed by a single attorney who filed similar suits against other schools. The statement said the number of students involved “represents a statistical dissatisfaction of less than one one-hundredth of 1 percent, or a satisfaction rate of 99.98 percent.”
• In 2004, the department’s Inspector General’s Office declined to investigate allegations that BCTI employees falsified admission tests so students could qualify for financial aid.
A private investigator hired by BCTI found evidence that two employees falsified 13 students’ tests. The school refunded $24,475 to the federal government and lenders and fired a vice president and another administrator.
The BCTI statement noted the problem was uncovered by the school itself and that the private investigator “documented that this was a very isolated and ‘rogue’ incident.”
Investigators with the Washington state Higher Education Coordinating Board later questioned the thoroughness of the private investigator’s work.
The agency found “a substantial failure in the school’s procedural controls to prevent test manipulations” and asked BCTI to repay $50,141 in state aid. BCTI has not paid.
• Financial statements submitted to the Department of Education show BCTI’s current liabilities again exceeded its current assets in 2000 and during the first six months of 2001. Federal law requires schools receiving aid to college students to have current assets that meet or exceed current liabilities at the end of their fiscal years.
• A close reading of recent financial statements suggests BCTI’s financial position was precarious for years.
C. Donald Smith, a certified public accountant and fraud examiner who examined the statements for The News Tribune, said it appears the owners transferred more than $6.2 million from BCTI to affiliated companies from 1996 to 2004.
Smith said the money apparently was misclassified in the financial statements as “current assets,” meaning the affiliates were to repay BCTI within the fiscal year.
But Smith sees no evidence the money was ever repaid. In fact, the total amount the affiliates owed to the school rose from about $3.2 million in 1996 to $9.4 million in 2004.
Smith said the statements did not disclose any collateral for the loans to affiliated companies, raising questions about their ability to repay.
The apparent misstatements had a big impact. Though BCTI’s net worth looked fine, Smith said the school appeared to be “worthless.”
The apparent misstatements might have allowed BCTI to meet federal standards for financial responsibility.
According to Smith’s analysis, if the money transferred to affiliates is excluded from current assets, BCTI’s real current assets met or exceeded current liabilities only once from 1996 to 2004.
Miles Goda, a former BCTI financial analyst, said in a court statement that BCTI’s owners used affiliated companies to strip the school of assets and to manipulate its financial statements to meet Department of Education requirements. He said the actions were “deceptive to the Department of Education” and allowed the school’s owners to “keep the student loan money coming in.”
Smith said an auditor should have questioned BCTI’s financial statements.
However, federal records show BCTI passed at least three Department of Education financial tests in recent years – including one just four days before it closed in 2005.
In the statement to the newspaper, BCTI officials called Goda “an example of a partially informed or ill-informed disgruntled former employee who was not technically qualified to address these issues conclusively.”
It said Smith’s analysis is countered by external and internal certified public accountants. “The CPAs who performed our annual audits and our internal CPAs all disagree” with Smith’s conclusions, the statement said.
Department of Education officials declined requests for interviews.
In response to written questions about the Department of Education’s handling of BCTI from 1993 to 2004, Babyak, the department spokeswoman, said she could not comment on actions taken by a previous administration.
Questions of quality
Federal officials weren’t the only ones cutting BCTI slack.
A private agency – the Accrediting Council for Continuing Education & Training – found BCTI’s 2001 graduation and job-placement rates fell below minimum standards for accreditation.
The federal government relies on private accrediting agencies like the council to ensure the quality of schools that receive federal funding. Accrediting agencies that oversee for-profit schools use measures like graduation and job placement rates to gauge quality.
The accrediting council requires schools to graduate at least 67 percent of their students to maintain accreditation. The 2001 graduation rates of 12 BCTI programs didn’t meet that standard. In some, just over half of students graduated.
The agency requires 70 percent of a school’s graduates to get jobs in fields related to their training; 14 BCTI programs fell short. In one program, only 20 percent of graduates got jobs in related fields.
Beginning in 2002, the agency issued a series of threats to withdraw BCTI’s accreditation. In one letter, the council expressed “serious concern” about BCTI’s ability to ensure the quality of its main computer program.
But the agency’s threats dragged on for years as it repeatedly decided to give BCTI more time to respond.
Meanwhile, the agency learned of other problems.
Darcie Pelsor was an instructor at BCTI’s Beaverton, Ore., campus. In 2004, she contacted several agencies – including the accrediting council – to complain about the school.
She said BCTI admitted unqualified students, including a man with severe memory problems who couldn’t recall anything he was taught.
In an interview, Pelsor said she brought the student to the attention of one of her supervisors but was rebuffed.
The Oregon Department of Education used Pelsor’s complaint to launch a wide-ranging investigation of BCTI. But she found the accrediting agency’s response lacking.
After an initial e-mail response, Pelsor said the agency never followed up, though she offered to put the agency in touch with other BCTI staff members who could corroborate her story.
About two months after receiving Pelsor’s complaint, the agency issued another threat to end BCTI’s accreditation based on substandard graduation and job placement rates. Once again, it decided to give BCTI more time.
Nearly three years had passed since BCTI first violated agency standards.
A month later, the agency dismissed Pelsor’s complaint. BCTI officials claimed that when they learned about the student’s memory problems, they decided to allow him to continue at the school free of charge.
Oregon investigators later questioned BCTI’s version of events. But the private accrediting council praised BCTI for “going to such extraordinary lengths” to help the student.
In December 2004, the agency again extended BCTI more time to address substandard graduation and placement rates. It did the same a month later.
Finally, on March 15, 2005, the council revoked BCTI’s accreditation. The following month it barred BCTI co-presidents Jonez and Pigott from ever again operating a school accredited by the agency.
By then, neither action mattered much. BCTI had closed March 11.
In the statement to the newspaper, BCTI officials said the dispute with the accrediting agency involved questions of “terminology and documentation methodology.” It said BCTI managers are confident the issues would have been resolved if BCTI had not closed.
Roger Williams, the agency’s executive director, would not answer questions about BCTI or agency policies.
“Gathering and evaluating data takes time, and developing a factual basis upon which to take action is essential,” Williams wrote in a brief e-mail.
Washington state officials also missed opportunities to scrutinize BCTI.
In 2002, just a few days after learning that the accrediting council was threatening to revoke BCTI’s accreditation, the state Workforce Training and Education Coordinating Board received its fourth student complaint about BCTI in 16 months.
The agency licenses private career schools in Washington. It has the power to investigate unfair business practices and to revoke a license if it finds a school acted improperly.
Among other things, the BCTI students complained of high teacher turnover, shoddy computer equipment and poor instruction. One student said BCTI misled her with promises of good pay after graduation – a claim echoed by dozens of Oregon students in lawsuits BCTI settled years earlier.
In his 2002 complaint to the Workforce Board, student Donald McKinney cited overcrowded classrooms and computers that were down for days. He said he went a week without an instructor. He wanted his tuition refunded.
BCTI denied the students’ allegations, and the board found the claims lacking. It dismissed all of them, though BCTI agreed to repay McKinney’s student loans. In exchange, McKinney agreed not to talk about his complaint.
Peggy Rudolph investigated some of the complaints for the Workforce Board. For McKinney’s, she traveled to BCTI’s Vancouver, Wash., campus.
But she said she didn’t find enough evidence to investigate further. And she wasn’t convinced that four complaints in 16 months merited special attention, given that BCTI enrolled hundreds of students.
“It just wasn’t much,” Rudolph said. “That’s not to say we couldn’t have done more.”
But by 2004, Rudolph had become suspicious of BCTI.
She kept in touch with Oregon officials who were investigating the school. She knew about the accusations of admission test fraud under investigation by the Higher Education Coordinating Board.
She also expressed concern to the accrediting council about the school’s low graduation and job-placement rates.
Rudolph began her own investigation, surveying former BCTI students.
Only a few dozen responded, but some echoed earlier complaints about poor instruction.
Rudolph also watched a BCTI recruiter at work outside the door of an Olympia unemployment office. She determined the recruiter violated a state law that prohibits schools from recruiting within 40 feet of a welfare or unemployment office. Rudolph later learned BCTI had not registered its recruiters – also a violation.
In their written statement, BCTI officials say a state officer manager invited the school’s recruiter to stand beneath an awning at his office. They also said they were told by a former Workforce Board employee that the school did not need to register its agents.
In response, Workforce Board spokeswoman Tana Stenseng said that regardless of whether a state employee was involved, state law prohibits recruiting within 40 feet of an unemployment office.
Stenseng said a former Workforce Board employee may have told BCTI it did not have to register “canvassers” – people who simply hand out literature and don’t collect contact information from prospective students. But she said anyone who talks to prospects and collects information is a sales agent who must be registered. In November 2004, Rudolph notified BCTI president Jonez of the violations. Rudolph said she found no more evidence that BCTI was breaking the law, and she finished her investigation in January 2005.
A month later, Oregon officials put BCTI on probation. Among other things, they cited teacher turnover and deceptive recruiting practices – concerns students had been expressing for years.
BCTI closed after Oregon issued its report and a Tacoma student filed a class-action lawsuit against the school.
After it closed, Rudolph received two more student complaints.
BCTI offered to settle one – again insisting the student agree to keep quiet.
Rudolph rejected the other after BCTI denied any wrongdoing.
“I feel the state of Washington was negligent in the licensing of BCTI,” student Ryan Cahill wrote in his complaint.
Cahill cited familiar themes: teacher turnover, poor training and promises of a big salary after graduation.
BCTI produced a signed form, showing Cahill acknowledged no wage guarantees. The school didn’t address his claim of high teacher turnover.
But Rudolph dismissed it anyway. There were 489 students enrolled at BCTI’s five Washington campuses when it closed, and she’d received complaints from only two, she wrote to Cahill.
“The agency can only conclude that it would have received significantly more complaints if instructor turnover was interfering with students’ ability to progress through the programs,” she wrote.
So far, more than 400 former BCTI Washington students have joined the class-action lawsuit.
In its response, BCTI noted the student complaints were all resolved.
“Each person was an important and valued former student and was treated accordingly,” the school said.
Deanne Loonin, an attorney for the nonprofit National Consumer Law Center, reviewed government documents on BCTI obtained by The News Tribune.
She wasn’t surprised the school escaped sanction for so long. In a recent study, she concluded agencies that regulate for-profit colleges and vocational schools have failed to protect students.
“There clearly were so many warning signs,” Loonin said of BCTI. “It’s just, I’ve seen this before.”
The BCTI documents “represent the run-of-the-mill back-and-forth” typical of enforcement, said Nassirian, an administrator for the American Association of Collegiate Registrars and Admissions Officers, a group that represents mostly traditional nonprofit schools. He also reviewed the documents.
“You can process some things to death,” Nassirian said. “If you get enough legal talent on something, some sort of compromise is arrived at.”
Nassirian said federal and state laws governing for-profit higher education are weak. He’s not the only one raising alarms.
Last year Thomas Carter, the Department of Education’s deputy inspector general, warned Congress about lax oversight of for-profit schools.
The department’s weak and inconsistent oversight puts it at risk of “failing to adequately identify and report significant instances of noncompliance” with federal law, Carter said.
Accrediting agencies lack meaningful standards for measures of quality such as graduation and job placement, he said. And state oversight is inconsistent.
Nassirian summed up the state of enforcement with this message for students: “You’re on your own.”
Students aren’t the only ones exposed.
According to the Department of Education, BCTI received nearly $140 million in federal student aid from 1997 to 2004 alone. It received $8.3 million during that time from Washington state college aid programs.
In 2004 – when BCTI was under investigation by three government agencies and a private accrediting agency – it got $810,144 from Washington state college aid programs.
It got $15.4 million in federal student aid funds that year, according to the Department of Education. About $4.6 million of that came from federal grants – money paid directly from taxpayers to BCTI students.
Another $10.8 million came from student loans. While students must repay those loans, taxpayers are on the hook if students default.
The Department of Education didn’t respond to queries about the number of BCTI students who defaulted or the amount taxpayers paid out for bad loans to those students.
But the school’s default rate ranged from about 7 percent to more than 28 percent over the years – above the national rate for every year since 1990.
For instance, in 2003 – the last year for which data is available for BCTI – the school’s default rate was 10.2 percent. The national rate then was 4.5 percent.
A question seldom asked
So what does it take to close a school like BCTI? If financial problems, substandard graduation and job-placement rates and student complaints and lawsuits aren’t enough, what is?
Department of Education officials would not answer that question. They declined interview requests and did not answer written questions.
Roger Williams, the accrediting council’s executive director, also declined to comment.
“I don’t see anything coming out of this (story) except something that’s going to try to make somebody look bad,” he said.
Washington state officials were more forthcoming.
Rudolph said regulators seldom try to close a troubled school.
The Workforce Board prefers to work with schools to get them to comply with the law, rather than shut them down. Rudolph said students who are satisfied with their education would get hurt if a school closes.
“I just think it’s better to make the school improve, rather than close it down,” she said. “That’s been our practice.
“Clearly, it doesn’t always work,” Rudolph added. “It didn’t work with BCTI.”