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Wednesday, May 17, 2017

“BY HOOK OR BY CROOK”: Grand Traverse Academy Tried It With The Crook; Will It Now The Hook? Grand Traverse Academy Board's Massive Increase In Short-Term Borrowing Traced Back To 2007, Coinciding With Steven Ingersoll's Fraudulent Conversion Of Millions

“Why does (the loan debt) keep being increased?” asked Board President Lesley Werth, deferring to Noss for specifics. 

“These are discussions we need to ask our management company during the whole process. These are questions that have been asked. (Noss) is responsible with directing the budget.”
May 17, 2017
Traverse City Record-Eagle

Oh, come on!

Surely that question, coming from a woman who's served on that Grand Traverse Academy board continuously since the school opened in 2000, is a rhetorical one, right? 

Between 2007 and 2014, the Grand Traverse Academy's board of directors enabled and covered up Steven Ingersoll's siphoning of millions from the Traverse City charter school, hastening its descent into a nearly untenable financial position.

But this dire financial situation did not sneak up on the Grand Traverse Academy's board of directors, it was created by their actions. 

It was further exacerbated by the board's decision in 2014 not to seek recovery of millions of dollars looted from the school by its former manager, Steven Ingersoll, instead writing it off to bad debt. (The board's decision, made during the FYE June 30, 2013, to accept forged bank statements from Ingersoll purporting to show a $1,813,330 repayment, later invalidated by federal prosecutors, is the subject of an ongoing investigation by the Michigan Department of Education and the Michigan Attorney General.) 


In my opinion, the Record-Eagle really did a disservice today to its readers by not providing them a more complete financial backstory.

Here it is.

Less than six weeks after receiving the Thrun Law Firm’s blistering May 31, 2013 legal opinion outlining details of Steven Ingersoll’s admission that he'd looted at least $3.58 million from the Grand Traverse Academy, members of its board of directors faced tough questions about Ingersoll from agents of the IRS Criminal and Revenue divisions. 

During the opening days of Steven Ingersoll’s sentencing hearing in late October 2015, an IRS agent testified that board members interviewed denied any knowledge of the missing money. 

That is, except one — its president, and longtime Ingersoll business associate, Mark Noss. 

According to the testimony of IRS Revenue Agent Michael Wisniewski, although Noss initially denied knowledge of the missing money during a phone call, Noss changed his tune during a face-to-face interview. Noss, interviewed in his office by Wisniewski, admitted that he did know about the $3.58 million dollar loss, but claimed it was legal for Ingersoll to take the millions. 

You'd have to ask Mark Noss why he considered Ingersoll's massive misappropriation of the Grand Traverse Academy's taxpayer-funded revenue legal, but Ingersoll's rapacious actions spurred another damaging financial practice that emerged in the fiscal year ending June 30, 2007 that every board member had a part in — the school's growing reliance on short-term State Aid Anticipation note borrowing. 

The Academy board authorized every loan transaction with an resolution, and those signed documents were included with every loan application. 

Didn't anyone on the board see the pattern...or did they just ignore the practice?

Beginning in the fiscal year ending June 30, 2009, the Grand Traverse Academy's manager, Steven Ingersoll, began to borrow massive sums, likely due to the impact Ingersoll's embezzlement was beginning to have on the Academy's throttled cash flow. 

The Academy had two short-term notes payable at the end of the fiscal year ending June 30, 2009 totaling $3.2 million dollars. 

At the end of June 2009, there was still $2,000,000 yet to be paid. 

By the end of the fiscal year ending June 30, 2011, the Academy had two short-term notes totaling $5,587,294 (with a $5,537,219 principal and $50,076 accrued interest). 

Starting in May of 2011, the State of Michigan began taking payments for a $2.0 million State Aid Anticipation Note with the Michigan Finance Authority directly out of state aid payments prior to distributing the remaining funds through Lake Superior State University and Wells Fargo. 

Although the Academy paid off a remaining $600,000 balance to the Traverse City State Bank and $3,400,000 due to charter school finance company Robert W. Baird & Co., the Academy borrowed an additional $6,400,000 in State Aid Anticipation Notes during the year from the Michigan Finance Authority, leaving the Academy with an ending balance of $5,537,218 at June 30, 2011 — nearly identical to the amount it owed at the beginning of that year.

In the fiscal year ending June 30, 2012, the Academy began the year with a short-term debt balance of $5,537,218. The Academy paid off two remaining notes from the previous fiscal year with a new short-term note for $4,600,000 million in August 2011. 

The balance at the end of June 30, 2012 was $4,208,719. 


During the fiscal year ending June 30, 2013, the Academy borrowed another $4,275,000 in short-term State Aid Anticipation Notes. 

With a beginning balance of $4,208,719, and payments totaling $5,230,990, the school was left with an ending balance of $3,252,729 as of June 30, 2012. 

It's like the guy who goes to his bank and says he just wants to borrow enough money to get out of debt. 

Instead of a pattern of subsequent borrowing to pay off the previous year's obligations, the school should have been building cash reserves instead of relying on larger and larger loans. 

Who believes board members didn't notice that pattern, especially when its members approved all short-term borrowing activity? 

Another pattern emerged, one that was also detailed in every Grand Traverse Academy audit from the FYE June 30, 2007 through the FYE June 30, 2013 while the short-term borrowing ramped up — if you knew where to look in the school's financials.

And the Academy board did, including Mark Noss, now the head of the charter school's management company, and its current president, Lesley Werth.

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 by Assistant United States Attorney Janet Parker on December 9, 2015 during his sentencing hearing!

And finally, Noss did not “inherit” the obligation to assume responsibility for repayment of Ingersoll's Smart Schools Management $925,000 Traverse City State Bank line of credit loan, as the Record-Eagle characterized the transaction in today's story.

Instead, a contemporaneous string of emails from early March 2014 among Steven Ingersoll, Mark Noss and Dan Stahl reveal a deal was struck on March 16, 2014 for Mark Noss to assume the obligation to repay Ingersoll's estimated $925,000 debt, days before Noss was formally awarded a management contract, while he was still the president of the Grand Traverse Academy's board of directors.

The deal was approved by the bank's board on March 18, 2014, one day before the GTA board voted to replace Ingersoll with Noss and his Full Spectrum Management.

Here's the complete text of an email Stahl sent to Ingersoll and Noss at 6:32pm on Monday, March 17, 2014:

I am writing to convey our approval and acceptance of a proposed $925,000 loan restructure to a new entity, originally made to Smart Schools Management, Inc. for the benefit of interim cash flow relief for Grand Traverse Academy. 

Since 2004, Traverse City State Bank and Grand Traverse Academy have had a productive and mutually beneficial community banking relationship. 

We were proud to finance the $3.5 million construction of the Academy’s high school addition in 2004. Subsequently, to aid in financing the successful growth of the Academy, we participated in several state aid notes and assisted with bridge financing until long term funding was secured through the 2007 Bond. In 2010, we also ensured that take-out financing would be available upon the expiration of the lease purchase option of the north parking lot and Three Mile Road entrance to the campus. 

Through all of these transactions, the Bank worked closely with Dr. Steven Ingersoll in order to optimize loan structures that would accommodate the Academy’s ongoing operational and growth strategies. We also continue to service the Academy’s checking accounts, have participated at school-sponsored events and outreach, and look forward to being a business partner with Grand Traverse Academy well into the future. 

In 2007, Dr. Ingersoll approached us about providing a line of credit that would satisfy Grand Traverse Academy’s interim cash flow needs and stabilize the peaks and valleys between state aid anticipation financing and accompanying revenues. The line of credit could accommodate the Academy’s growth targets without the added expense of originating a new loan each time funds were needed. 

It was our understanding that Grand Traverse Academy could not directly enter into such a transaction even though the Academy would be the beneficiary of such an arrangement. We established a line of credit to Smart Schools Management in 2007 for $500,000. The line eventually grew to $1,000,000 by 2010 as Academy growth necessitated. 

From origination, the line of credit was personally guaranteed by Dr. Ingersoll and secured with all business assets of Smart Schools Management, an assignment of life insurance, and, most importantly, a direct assignment of Smart Schools’ management receivable contract with Grand Traverse Academy based on 12% of revenues. 

This collateral structure was deemed appropriate by the Bank and Smart Schools since funds passed through Smart Schools to the Academy, who was the beneficiary of the cash flow proceeds. From 2007 through 2011, the line worked well and helped the Academy save in financing expenses from other potential short term resources. 

Today we share in a kind expression of concern regarding the current distressing circumstances occurring with Smart Schools, Dr. Ingersoll and his family. Further, we truly appreciate you, Dr. Noss, stepping up to assume the role of managing the operations of the Academy currently provided by Smart Schools. 

As stated previously, Traverse City State Bank is in agreement to restructure the remaining balance of approximately $925,000 to your new management entity. We also agree to allow the management fee paid by Grand Traverse Academy to be reduced from 12% down to 9%, thus allowing a rapid recovery of the Academy’s deficit while also providing you sufficient revenue to repay this debt over an acceptable time period. 

To further aid in this strategy, we have agreed to extend our repayment period from five years to ten years, and reduce the interest rate from a floating rate that is currently at 5%, down to a fixed rate of 4% for the entire term of the repayment period. Finally, we will offer an “interest only” payment period for the first 12 months, resulting in a total eleven year repayment period. 

It will be most helpful for our file if there can be a resolution drafted by the Board of Grand Traverse Academy authorizing a new management contract to your entity at 9% of revenue that replaces the existing contract with Smart Schools. It is our intention to provide these accommodations to you in order to facilitate a rapid stabilization through this difficult situation. We are prepared to move quickly to achieve this end. 

Further, we hope our efforts demonstrate Traverse City State Bank’s continued commitment to Grand Traverse Academy’s success, and acknowledgment of its importance to our children and community. 

Now you have the facts.

2 comments:

  1. Wait for it wait for it!
    don't tell me....WERTH will soon have a management company!

    ReplyDelete
  2. Good Lord Werth is crooked as hell. What garbage. If GTA was smart they would get rid of the lot of them and start over. Obviously, Noss's debt, is his not GTA's debt. I hope they finally nail these sucker to the wall. The teachers will be fine, they are the credit to their community. But anyone in administration needs to go, they all know what is going on and have a hand in it. Got their hands in the cookie jar! Get em out!

    ReplyDelete

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