by Alec MacGillis

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

Last April, West Virginia awarded a nearly $10 million contract to a company called Student First Technologies to manage the state’s Hope Scholarship program, which gives families about $4,900 per child to spend on private-school tuition and homeschooling expenses. The company’s founder, Mark Duran, reacted with delight. “We are very excited to serve your great State,” he wrote.

But problems soon emerged, as reflected in emails obtained by a ProPublica public-information request. Some private schools were so late in receiving their voucher payments from families that they were having trouble meeting payroll. In late August, a state official wrote to Duran with a list of invoices that needed to be paid promptly, including three from a school, Beth Haven Christian in Chauncey, that had “called and indicated they are experiencing significant cash flow issues.” The email continued, “We need to make sure they have their funds early in the day if at all possible.”

The school eventually got its funds. But the episode highlights the challenge that states are facing with their rapidly expanding school-choice programs: making sure the taxpayer money they are allowing families to spend on behalf of their kids is being processed efficiently and properly. To do so, they are relying on a small group of fledgling companies that have seized the opportunity to serve as middlemen for this fast-growing market. The work can be lucrative, but it has also proven so daunting that in several states, the companies that carry it out have ended up losing contracts to their rivals — sometimes less than a year after winning them — as questions arise and audits and lawsuits pile up.

An idea sold on the basis of its simplicity — give parents money to spend on their kids’ education as they see fit — has turned out to be anything but simple in practice. And this complexity comes at a cost: paying companies to run the programs.

There are now a dozen states in the country that offer universal private-school vouchers, making them available to families of any income level. The largest of those programs, in Florida, is now costing taxpayers nearly $3 billion a year, with the programs in Arizona and Ohio each drawing around $1 billion a year from taxpayer funds.

In some of the states, the money comes to parents in the form of “education savings accounts,” which can be used on education-related expenses other than tuition. These programs are especially complex to implement, since some form of oversight is needed to make sure families are spending the money in ways that comply with the rules.

Angling for the task of managing this spending are four companies. The largest is ClassWallet, which is based in Hollywood, Florida. Its founder, Jamie Rosenberg, initially offered its online procurement technology to teachers and administrators to reduce the amount of paperwork involved in school expenditures. But the company has shifted to capitalize on the school-choice market. With backers including Lazard Family Office Partners, a global investment firm, ClassWallet has more than........

© ProPublica