}

Wednesday, June 4, 2014

A 'MISS FORTUNE' EXCLUSIVE: The Full Spectrum/Grand Traverse Academy Management Contract Revealed!

The new Full Spectrum Management contract with Grand Traverse Academy could pay Mark Noss up to $4.0 million dollars over its two year term.


That striking fact, along with many others, is found in the March 19, 2014 management agreement executed between the Grand Traverse Academy and its new education management services provider, Full Spectrum Management, LLC (FSM). The 15-page contract was obtained from Lake Superior State University through a Freedom of Information Act request.

By awarding a multi-year contract to FSM on March 19, formed the very same day by former Academy Board President Mark Noss expressly for the purpose of entering into this management agreement, it appears that the Academy has merely made a change in form and not substance.

MANAGEMENT FEE: CAPPED AT $2.0 MILLION PER YEAR, STILL NO OBJECTIVE MEASURE TO CALCULATE ANNUAL FEE

Although the Academy's 2013 financial audit report revealed that Academy lacked "an objective measure to calculate the annual management fee owed to Steven J. Ingersoll’s Smart Schools Management, Inc.", the FSM agreement provides no remedy.

Under "Financial Arrangements" (left), the contract sets FSM's minimum annual compensation at $650,000 and caps it at $2,000,000.

The Academy ‘s Board of Directors passed a resolution on May 12, 2012 establishing a management fee cap of 12 percent of revenue, although the contract with Smart Schools Management, Inc. stated that its management fee should “not exceed $2,000,000 in any fiscal year.”

It is unclear whether the same limit applies to Noss, or if the Academy's Board simply walked away from that earlier restriction.

In addition, while Academy Superintendent Kaye Mentley was quoted in the April 26th Traverse City Record-Eagle asserting that FSM "will be paid on a monthly basis and won’t receive advanced payments" the contract does not establish payment termsbut it does still allow the Academy's Board to "advance funds" to FSM.

PREPAID FEES: THEY'RE STILL ALLOWED

While the Michigan Revised School Code prohibits local school districts, including public school academies, from advancing monies to private entities, the Academy's contract with FSM includes a clause that enables the Board to continue the prohibited practice.

Traverse City certified public accounting firm Dennis, Gartland & Niergarth raised several troubling internal financial control and compliance issues in its 2013 audit report to the Academy.

Among its major concerns were the advance by the Academy of prepaid fees to Smart Schools Management, Inc., the possible “abuse” of Smart Schools Management in their “access to public funds” and the negative unassigned balance in the Academy’s General Fund.



However, the "Payment of Costs" (left) section of the FSM contract allows the Academy Board to "advance funds to FSM for the fees for expenses associated with the Academy's operations."
 

In addition to receiving “prepaid management fees”, Smart Schools Management, Inc. had the ability to “transfer funds between the Academy’s and Smart Schools Management, Inc.’s bank accounts” without prior approval.

Ingersoll's Smart Schools Management took cash advances for their management fee each year in the beginning of the school year based on the budgeted figure and “without further Board action”.

Prior to 2013, budgeted amounts “exceeded what the Academy could ultimately afford”.


The auditor’s report bluntly informed the Grand Traverse Academy that Smart Schools' ability to “prepay their fee and withhold payment of overpaid fees” enabled Ingersoll's company to “abuse their access to public funds”.

By allowing Ingersoll to "advance monies" to his private entity, Smart Schools Management, Inc., the Grand Traverse Academy was “out of compliance” with Michigan’s Revised School code.


Once again, it appears that this contract provides no remedy to prevent FSM from engaging in similar "abuse" of public funds.

CONTRACT RESPONSIBILITIES...AND THEN THERE'S FOOD SERVICE

The contract's "specific functions" section (left) outlines the financial management, operation, administration and education duties obligated by FSM per the management fee.

In addition, the agreement allows FSM to subcontract out everything except the "management, oversight or operation of the teaching and instructional program" without approval by the Academy's Board.

FSM will also provide teachers, a school "Director", and school support staff. The contract does state that FSM may not charge an additional fee when paying costs on behalf of the Academy—but it's unclear whether that restriction applies to the teaching staff.

ADDITIONAL REVENUE STREAM

FSM can develop—and own—curriculum and education materials for use at the Academy. However, materials developed by FSM at the direction of the Board remain the property of the Academy.

The Academy's 2013 financial audit indicates Steven Ingersoll's Smart Schools Management, Inc. was paid an additional $300,000 for "education programs/consulting". Although there's no expectation that Noss will deviate from Ingersoll's "Integrated Visual Learning" method, it's unclear how much FSM will be able to bill the Academy for "consulting".

ARMS-LENGTH...OR "ARMS LINKED"?

And finally, my favorite 
clause—next to Santa, of course—is the "Status of Parties" claim that the "relationship between the parties hereto was developed and entered into through arms-length negotiations".

More likely it was an "arms linked" negotiation, one that was less "arms-length" and more a dancing-around-in-big-circles-with-arms-linked-and-singing-Kumbaya negotiation.

(Come on, you didn't think I could go this long without a joke, did you?)

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