|The Ghost of Prepaid Expenses Past|
"Do we sue Smart Schools or take it to court? What are our options?,” board chair Brad Habermehl said. “The $1.6 million has been haunting us for over a year now.”
While you contemplate that confusing comment made by the current president of the Grand Traverse Academy's board, head ghostbuster Brad Habermehl, it appears that the next move in L'Affaire Ingersoll is... more pondering.
As the Traverse City Record-Eagle reported on July 18, the Academy board is still trying to "find out more about the $1.6 million that’s owed to them by their federally indicted founder and head of their former management company." The board met last Friday to discuss, among other agenda topics, Steven Ingersoll's overpayment (to his Smart Schools Mangement, Inc.) of $2.38 million dollars and subsequent refusal to return the money to the Academy.
Board members voted to seek bids for legal counsel.
While the missing millions were classified in the Academy's 2013 fiscal audit report as a "prepaid expense", that creative accounting trick no longer applies in the 2014 fiscal year. As I discussed in a post titled, "You Can Roll A Baby In Flour, But That Doesn't Make It A Polar Bear", there's absolutely no remaining value for future accounting periods.
When Steven Ingersoll tipped off the Academy board that he was about to be indicted by the feds, paving the way for Mark Noss to take over his operations, that money ceased being considered an asset (described in the audit report as a "non-spendable fund balance of $2,338,980") and became a liability.
However, it appears that the Academy board is reluctant to accept reality, and continues to flail around like a panicked swimmer frantically looking for a pool float.
Miss Fortune takes yet another look at the Academy's problem, starting with prepaid expenses and related party transactions.
PREPAID EXPENSES 101: AN ACCOUNTING TUTORIAL
Prepaid expenses are classified as assets that become expenses as they expire or get used up. At the end of each accounting period, adjusting entries are necessary to recognize the portion of prepaid expenses that have become actual expenses through use or the passage of time.
However, although the Michigan Revised School Code prohibits local school districts, including public school academies, from advancing monies to private entities, the Academy's contract with Ingersoll's Smart Schools Management, Inc. apparently included a clause that enabled the Board to continue that prohibited practice for years. (See grid below.)
And as I reported on this blog, the no-bid, multi-year, multi-million dollar contract awarded on March 19 to Mark Noss' Full Spectrum Management, LLC continues that practice, allowing the board to "advance funds" to Full Spectrum Management for "expenses associated with the Academy's operations."
And although Habermehl read a prepared statement into the July 18 Academy board meeting minutes wistfully recalling Ingersoll's purported "rebating" during the early years of Smart Schools' association with the Academy, the board more than made up for any "loss" on Ingersoll's part with a new management contract in 2009 that increased his fee by nearly 235 percent over the previous year.
2013/2014 BUDGET: SO WHERE IS THAT $774,000 "REDUCTION"?
A proposed 2013/2014 budget, shown at left, dated June 7, 2013 (before the Academy's 2013 fiscal audit report revealed Ingeroll's overpayment and outlined the "repayment" plan) notes a projected expenditure of $1,319,040 for the line item "Executive Administration" or management fee.
The budget provides a baseline measurement to help determine expected "savings" provided by utilizing the plan outlined in the Academy's 2013 fiscal audit report.
As you can see at left, Ingersoll's
$2,338,980 overpayment was to be returned to the Academy in fee reductions over three years.
However, it appears from subsequent 2013/2014 budget updates posted on the Academy's website those promised "reductions" may not have occurred.
A 2013/2014 budget update, dated May 2, 2014 (after the Noss takeover of the Grand Traverse Academy) shows an increase in "Executive Administration", going from $1,319,040 to $1,410,617. The increase may be attributed to the roughly $100,000 paid to Noss's Full Spectrum Management, LLC during April.
However, based on the "plan" agreed to in the 2013 audit, I would have expected to see a baseline expenditure closer to $572,234, reflecting the $774,000 reduction in Ingersoll's management fee proposed in the audit. From these reports, it appears that Ingersoll may still have been "paid in full" during the 2013/2014 fiscal year ending June 30.
The budget reports raise even more questions: just how much money did Steve Ingersoll's Smart Schools Management, Inc. receive from the Academy in management fees through June 30, 2014 for this fiscal year?
And how long was the "overlap" between Smart Schools and Full Spectrum Management? Was Ingersoll being paid during the "hand-off" to Noss, and what service did Ingersoll provide during that time?
During a June 27 special board meeting, Academy board members asked Mark Noss to reconsider top employees who were also currently employed by Smart Schools. The board approved a resolution urging Noss to "reconsider any employees, especially those in management" with close ties to Smart Schools.
The resolution singled out Kaye Mentley, the Academy's then-director, as a potential target of "appropriate action", while acknowledging (in a high-flying demonstration of corporate speak) certain "ambiguities" among the school and its former and current management company.
Mentley, fired on July 2, got a 12 hour PR jump on flat-footed Noss by sending out her own email blast announcing the departure.
And four months after forming Full Spectrum Management, LLC, Noss still employs Ingersoll’s daughter in-law, Gretchen Ingersoll, to handle the Grand Traverse Academy's finances...from the home she shares with husband Josh in Grants Pass, Oregon. In addition to her "part-time job" with Mark Noss, Gretchen Ingersoll is also currently employed by Steven Ingersoll's Smart Schools Management, Inc.
But the Record-Eagle reports Noss said he’s "in the process of transitioning her out" of one of her part-time jobs.
"ADVANCES STEVEN INGERSOLL HAD MADE TO HIMSELF...FROM FUNDS BELONGING TO THE GRAND TRAVERSE ACADEMY"
Let's look at what got this big, sticky ball rolling way back on April 10: Steven Ingersoll's federal indictment on a nut cluster of charges, including bank fraud and tax evasion.
What piqued my interest was this excerpt from the indictment (above), which alleged that Ingersoll had used some of the nearly $1.0 million dollars he'd diverted from a bank loan to "reduce his indebtedness to the Grand Traverse Academy resulting from advances Steven Ingersoll had made to himself from funds belonging to the Grand Traverse Academy."
Keep in mind that the allegations detailed in the April 10 indictment occurred during 2010 and 2011, which could mean there's a lot more than just the missing $1.6 million dollars at stake.
While the indictment provides no details on the amount Ingersoll "advanced to himself" from the Grand Traverse Academy's coffers, or the amount he may have repaid, Ingersoll's upcoming trial may reveal a significant lack of financial controls by the Academy's board that could jeopardize the school's future.
If it's proven in court that Ingersoll "dipped into" the Academy's funds to support his lifestyle (for example, Ingersoll's own gastric bypass procedure and wife Debbie's breast augmentation surgery), then Kaye Mentley's published statement (scrubbed from the Grand Traverse Academy website on July 4) claiming Ingersoll's federal charges did "not involve the Grand Traverse Academy" will be as hollow as it was when it first appeared back in early April.
Ask its ghostbuster, board president Brad Habermehl.
He seems to be the go-to haunting guy.