GRAND TRAVERSE ACADEMY BOARD OFFICIALS COPIED;
RECEIVED COMPLAINT MARCH 31!
Two years after charter school manager Steven Ingersoll’s March 10, 2015 federal tax evasion and conspiracy convictions, Michigan authorities, including the office of its Attorney General, Bill Schuette, are finally investigating Ingersoll’s related-party financial transactions, the Grand Traverse Academy's (GTA) debt write off process and its decision not to seek repayment of money that may have been misappropriated by Ingersoll between 2007-2013, estimated at $5.0 million.
Kicked into action by a formal complaint I filed on March 31, 2017, the Michigan Department of Education confirmed in an April 4, 2017 email that it is investigating the decision by the GTA’s Board of Directors to “write off” a $1.6 million debt owed to the school by Ingersoll, its calculation of the amount—and the three optometrists who looked at a charter school full of children and saw only a cash-rich “golden goose”: Steven Ingersoll, Mark Noss and Brad Habermehl.
After dithering publicly for months in 2014 about its “plan” to collect money owed to the Grand Traverse Academy (GTA) by its former manager, optometrist Steven Ingersoll of Smart Schools Management, Inc. (SSM), the Traverse City, Michigan, charter school's annual fiscal audit revealed its board decided to just “write off” $1,623,000 to bad debt, and not pursue collection.
The GTA board included a $1,813,330 “repayment” by Ingersoll into its write off calculation — an amount credited against his debt, estimated in by Ingersoll at $3.58 million as of June 30, 2012.
Bank statements he’d created himself, crude forgeries accepted as “proof of payment” by the GTA board.
Later, during the sentencing phase of Ingersoll’s federal tax evasion trial, bank records authenticated by federal prosecutors revealed Ingersoll did not repay roughly $1.8 million to the Grand Traverse Academy as he'd claimed.
An October 19, 2015 court document revealed Ingersoll transferred $1,748,300 to the GTA, but transferred $1,863,000 back to SSM.
According to the government’s analysis, the net impact of the transfers made by Ingersoll from July 1, 2012 to December 31, 2012 between the accounts for the GTA and SSM was that Smart Schools, and therefore Ingersoll, received $114,700 more from the GTA than the school received from the management company.
Although Ingersoll’s purported $1.8 million “repayment” was conclusively debunked in federal court, the GTA board did not restate the charter school’s financials for the fiscal year ending June 30, 2014, even though the school’s official report included a whopping material inaccuracy— the bogus $1,813,330 “repayment” by Ingersoll (shown below).
Excerpts from my formal complaint, including essential background information, follow:
At the start of each fiscal year, (for the years beginning July 1, 2007 and continuing for six years through the fiscal year ending June 30, 2013), GTA manager Steven Ingersoll withdrew his entire annual SSM fee from the Traverse City charter school’s bank account before it had been earned — and before he was contractually entitled to receive it.
Although Ingersoll’s initial annual management fee was historically based on a percentage (12 percent) of the GTA board’s preliminary budget figures, Ingersoll’s fee was necessarily “adjusted downward” after actual budgets were calculated at the end of each fiscal year.
Ingersoll booked the overpayments on the GTA’s balance sheet as either “accounts receivable” or a “prepaid expense”, claiming them as “assets”.
However, Ingersoll never really repaid the difference between the amount he'd advanced himself (“what we’re calling a prepaid expense”) and the actual management fee he should have received.
Although the receivable grew from $538,864 on June 30, 2007 to $3,551,328 on June 30, 2012, Ingersoll asserted he’d booked each year’s fee overpayment as a receivable and paid it off at the beginning of the next fiscal year.
However, after Ingersoll had paid the previous year's receivable balance using Michigan state aid money provided to the Grand Traverse Academy, Ingersoll transferred that money back from the Academy’s bank account to one of his Smart Schools accounts, annually creating a new, and even larger, receivable balance with the Grand Traverse Academy.
The Grand Traverse Academy carried on its books large amounts classified either as “amounts receivable from sources other than governmental units”, “related party receivables” or “prepaid expenses” beginning as far back as 2005 ($126,649) and 2006 ($691,703).
In its 2008 audit, the Grand Traverse Academy revealed it was owed $938,481 as an “accounts receivable”. In its 2009 audit, the Grand Traverse Academy revealed it was owed $3,049,957 as an “accounts receivable”.
In its 2010 audit, the Grand Traverse Academy revealed it was owed $2,715,251, classified as "amounts receivable from sources other than governmental units".
The 2011 audit revealed that the Grand Traverse Academy was owed $2,500,000 from "related parties", the first use of that classification. The "related party receivable" amount, which ballooned to well over $3.5 million by the June 30, 2012 audit, was solely attributable to Steven Ingersoll.
Ingersoll ultimately admitted he’d utilized the “accounts receivable” scheme as financial cover for diversion of funds from the Grand Traverse Academy — under direct examination on December 9, 2015 by Assistant U. S. Attorney Janet Parker during his sentencing hearing.
DEMAND FOR REPAYMENT: $3.58 MILLION
Representatives of the GTA board met with attorneys from the Thrun Law Firm and Steven Ingersoll on May 20, 2013. The meeting was initiated after federal investigators paid visits to the school’s superintendent, Kaye Mentley, and president of its board of directors, Mark Noss. During the meeting, Ingersoll admitted owing the charter school at least $3.5 million but asked to have the debt classified as a “loan”.
According to a May 30, 2013 Thrun Law Firm legal recommendation to Noss and the GTA board, the issue before the board related “to funds withdrawn from the Academy’s general fund by Steven Ingersoll and/or representatives of SSM, which exceed the amount appropriated or authorized by the Board to be paid to SSM for either management fees or the reimbursement of Academy expenses.”
The letter estimated Ingersoll’s debt to the Traverse City charter school at $3,548,319 based on information provided by CPA Tony Henning.
As Henning had relied solely on “financial reports and representations of Steve Ingersoll” to determine the amount, Thrun repeatedly urged the GTA board to “independently verify the full sum due” instead of accepting Henning’s number. Thrun affirmed in its May 30, 2013 letter that “Steven Ingersoll openly admitted, when asked by us during the May 20th meeting, that a conflict exists between his personal interests and the interests of the Academy.”
The GTA board did not follow Thrun’s recommendation to verify Ingersoll’s numbers, accepting instead CPA Henning’s $3,548,319 amount in a subsequent “demand” letter to Steven Ingersoll.
In a June 13, 2013 “demand for payment” letter sent by attorney Doug Bishop on behalf of the Grand Traverse Academy board, Ingersoll was directed to immediately repay the outstanding $3.58 million.
Bishop's letter included this provision:
“To the extent that it is your position that this obligation has been reduced by any sum, we will require documented proof of all claimed repayment transactions, transferring funds from Smart Schools Management, Inc. to Grand Traverse Academy.
Such documented proof must include, at a minimum, confirmation of the Grand Traverse Academy account to which the payment was made and the Smart Schools Management, Inc. from which the payment came. The documentation should include documentation of wire transfer or copies of checks or other transfer documents.”
However, Ingersoll substituted unofficial “bank records” to Bishop purporting to show he had transferred $1,813,330 from Smart Schools Management, Inc.’s (SSM) bank account to the Grand Traverse Academy’s (GTA) bank account, but Ingersoll did not disclose that he had also transferred funds from the GTA account to his SSM account.
The net impact of transfers made by Ingersoll from July 1, 2012 to December 31, 2012 between the accounts for GTA and SSM was that SSM, and therefore Ingersoll, received $114,700 more from GTA then GTA received from SSM.
RELATED PARTY ACTIVITIES FISCAL YEAR ENDING JUNE 30, 2013; PREPAID EXPENSES; ABUSE OF PUBLIC FUNDS
The Grand Traverse Academy’s 2013 fiscal audit addressed several issues and its auditor, Traverse City-based public accounting firm Dennis, Gartland & Niergarth (DGN), expressed opinions in its November 7, 2013 “Independent Auditors Report” letter.
Prepaid Expenses As described in Note M to the financial statements, the Academy has advanced Smart Schools Management, Inc. $2,338,980 as of June 30, 2013, resulting in deficit unassigned fund balance. The Academy has accepted a repayment plan from Smart Schools Management, Inc. in which the management company will work off the prepayment by partially reducing cash transfers for future management fees through June 30, 2016. We have reported findings related to the advance of prepaid fees, the abuse of Smart Schools Management, Inc. in their access of public funds, and the negative unassigned fund balance in our report in accordance with Government Auditing Standards noted below.
NOTE M – RELATED PARTY ACTIVITIES (FYE June 30, 2013) Total payments to Smart Schools Management, Inc. during the year totaled $6,946,462 and refunds received total $1,897,805. As of June 30, 2012, the Academy carried a prepaid expense/expenditure balance of $2,338,980 for payments made to Smart Schools Management, Inc.
Compliance and Other Matters (FYE June 30, 2013) 2013-4 Prepaid Expenses Criteria: The Revised School Code does not authorize local or intermediate school districts, including a public school academy, to advance monies to private entities.
Condition: As of June 30, 2013, $2,338,980 of management fees pledged back to the Academy have been advanced to Smart Schools Management, Inc.
Cause: The contract with Smart Schools Management, Inc. sets a ceiling for the management fee, but does not include an objective measure to calculate the fee annually. Smart Schools Management, Inc. had the ability to transfer funds between the Academy’s and Smart Schools Management, Inc.’s bank accounts.
Smart Schools Management, Inc. took cash advances for their management fee each year in the beginning of the school year based on the budgeted figure without further Board action. Prior to 2013, budgeted amounts have exceeded what the Academy could ultimately afford.
At the time it was realized Grand Traverse Academy could not afford the management fee, the fee was adjusted downward on the general ledger, but the advances were not repaid.
Effect: Smart Schools Management, Inc.’s ability to prepay their fee and withhold payment of overpaid fees enables Smart Schools Management, Inc. to abuse their access to public funds. Further, the Academy is out of compliance with the Revised School Code.
On November 24, 2013, Steven Ingersoll wrote the following email to Mark Noss at 2:23pm, and attached a PDF described as “SSM A-R payments to GTA FY 12-13 bank statements”:
On November 8, 2013 at the GTA board meeting DGN presented the final audit with a surprising and unexpected finding that implied “abuse” of public funds. They based their finding on their stated position that SSM had not transferred cash to service the FYE accounts receivable balance on GTA’s books at FYE 12.
As you recall I disputed that contention both verbally and in management’s written response. The auditors verbally repeatedly stated that there was no evidence of cash transfers. I have attached the confirming bank statements for your review. Please share these statements with your board member colleagues to give them comfort that those transfers did indeed occur. Steve
Confirming activity that could be a violation of Michigan’s Open Meetings Act, Mark Noss responded at 6:06am on December 9, 2013 in an email with the subject line: “Re: Bank statements showing cash transfers from SSM to GTA”.
In his response, Noss confirmed to Ingersoll he’d shared Ingersoll’s “bank statements” with the Grand Traverse Academy’s board of directors: Steve, I have sent these bank statements to all board members and followed up with phone calls to each member to discuss this. Every board member saw and understood that these transfers took place and agreed that no “abuse of funds” took place. We are all comfortable that we made the right decision in accepting management’s response to the audit. Thanks, Mark
On March 19, 2014, Mark Noss resigned from the Grand Traverse Academy board, and was awarded a management contract with the school.
An accountant formerly employed by Mark Noss at his Full Spectrum Management, LLC (FSM) sent an email to the Grand Traverse Academy board on March 15, 2016, disclosing Noss had been making monthly $12,500 payments to Steven Ingersoll for nearly two years.
In my opinion, once documents contradicting Steven Ingersoll’s $1,813,330 “repayment” assertion were entered into evidence during his federal sentencing hearing, the Grand Traverse Academy board had a fiduciary duty to act. In use of public funds, public officials are held to the standard of care and fiduciary duties that a trustee owes a beneficiary under Michigan law.
And although Steven Ingersoll’s federal tax fraud and conspiracy convictions may not be directly related to his management of the Grand Traverse Academy, former board president Mark Noss submitted two sworn affidavits to Ingersoll’s defense team.
In addition, then-president Brad Habermehl testified for the defense on multiple occasions during Steven Ingersoll’s sentencing hearing, with an attorney provided and paid by the Grand Traverse Academy board of directors.
It’s clear this case was on the board’s radar, and that it was likely aware in late 2015 that the government’s October 19, 2015 analysis of Steven Ingersoll’s “repayments” contradicted his version — the version Mark Noss told Ingersoll in his December 9, 2013 email “every board member saw and understood.”