}

Saturday, November 29, 2014

STEVEN INGERSOLL'S THIRD TRIAL DELAY: Start Reportedly Moved From December 2 to February 10, 2015

Although official US District Court filings do not yet independently confirm the information, the Traverse City Record-Eagle is reporting that Steven Ingersoll's federal fraud trial has been delayed a third time, with the start date moving from December 2 to February 10, 2015 (just in time for me to break out my snazzy resort wear wardrobe!)

In an article posted online, the Record-Eagle's Michelle Merlin (who's clearly been reading this blog!), claims the delay was granted after Ingersoll’s attorneys "requested more time to review the government's evidence"―an argument also known in legal circles as "The Dog Ate My Homework".

Merlin's source appears to be Ingersoll's attorney, Traverse City attorney Jan Geht, who is quoted in the article and likely provided the heads-up on his client's trial delay. Before he was indicted on April 10, Ingersoll's defense team (including Geht) spent nearly a year unsuccessfully negotiating a plea deal on his behalf.

"We wanted more time to prepare a defense to the tax evasion count based on the government data," said Geht. "We always thought that it had to do with the relationship between Grand Traverse Academy and Smart Schools Management, but it looks like once (the government) provided us with information, that it's more about his relationship with his wholly owned companies." 

In addition to Geht, a CPA and former tax division trial attorney for the U.S. Department of Justice, Ingersoll is represented by Detroit criminal attorney Martin E. Crandall. 

Crandall specializes in white-collar criminal defense.

THE BACKSTORY

In the Grand Traverse Academy's 2013 financial report, Ingersoll, on behalf of his Smart Schools Management firm, agreed that it “owed Grand Traverse Academy an amount classified as a prepaid balance” ($2,338,980), and worked out a repayment plan with the Academy. The plan called for SSM to work off the prepayment by “partially reducing cash transfers for future management fees through June 2016”. 

After dithering publicly for months about its supposed "plan" to collect the missing $1.6 million owed to the Grand Traverse Academy by Steven Ingersoll's Smart Schools Management, Inc., the Traverse City charter school's 2014 fiscal audit reveals its Board decided to just "write it off".

The so-called "prepaid management fees" were to have been received from Steven Ingersoll as follows
―hardly "chipping away" when you realize Ingersoll refused to return any money while the Board continued to pay him:

2014: $774,000
2015: $960,000
2016: $604,980

The Academy Board made the deal with SSM just weeks after demanding repayment of "at least $3,548,319.00".

Formerly carried on the Academy's books in 2012 as a "related party receivable", the $3.5 million dollars was quietly reclassified in 2013 as a "prepaid expense" and reduced to $2.38 million.


(Miss Fortune is currently investigating the reason for the reduction.)

The Record-Eagle article states that the Grand Traverse Academy board members and former board president Mark Noss now have "a more relaxed view of the money they said Ingersoll owed them".  Noss now manages the Academy as head of its management provider, Full Spectrum Management, LLC.

Noss was officially awarded his management contract on March 19 during an early-morning Board meeting, but actively remained a member of the Grand Traverse Academy Board. Noss participated in the April meeting in a dual role as both board member and management company head—an arrangement that is illegal in Michigan and expressly prohibited by the Academy Board's ethics policy. 

In addition, although the Academy board stated its intention to "cut ties" with former Smart Schools employees in a June 27 resolution, urging Noss to "reconsider any employees, especially those in management, with close ties to Smart Schools", Ingersoll's daughter-in-law, Gretchen, is reportedly still handling Academy finances for Full Spectrum Management. 

In addition to her job with Mark Noss, Gretchen Ingersoll is also currently employed by Steven Ingersoll's Smart Schools Management, Inc. And in another related development, Noss's son-in-law, Brian Lynch, was named by Ingersoll to head the Bay City Academy mere days after Noss took over the Grand Traverse Academy.

THE GOVERNMENT'S CASE...AND INGERSOLL'S DEFENSE

According to the government, this case began in 2009 when Steven Ingersoll “caused another charter school that he owned or controlled—the Grand Traverse Academy—to advance him funds that needed to be repaid”. 

Counts 6 and 7 of the April 27 superseding indictment “relate specifically to those advances and Steven Ingersoll’s personal income tax treatment of those transactions in 2009 and 2010.” The superseding indictment alleges that Steven Ingersoll either mischaracterized or omitted the advances from his personal income tax returns.

Ingersoll, then acting in concert with Roy C. Bradley, Sr., “conspired” to “induce Chemical Bank, an FDIC insured depository institution, to approve a $1.8 million construction line of credit loan to Madison Arts L.L.C. to finance the construction work for the Bay City Academy in Bay City.”  (The shell corporation 'Madison Arts LLC' was formed on December 16, 2010 by Ingersoll.)


After diverting approximately $932,000 from the Chemical Bank loan, Steven Ingersoll then transferred $704,000 to Roy Bradley and Tammy Bradley’s construction company’s credit union account. Tammy Bradley then transferred  $704,000 to Gayle Ingersoll’s business account.

Gayle Ingersoll then transferred the $704,000 to Steven Ingersoll and Deborah Ingersoll’s joint, personal bank account at Fifth-Third Bank. Once the $704,000 was in Steven and Deborah Ingersoll’s personal account, Steven Ingersoll was able to use that money to partially repay the Grand Traverse Academy.

The government alleges the bank fraud conspiracy began when Steven Ingersoll submitted a $704,000 draw request to Chemical Bank supported by Roy Bradley’s certification of construction work at the Bay City Academy's Madison Arts campus.

Rather than using the loan for the Bay City construction project, Steven Ingersoll used loan proceeds to partially repay the advances from Grand Traverse Academy. The superseding indictment alleges that all five of the defendants “conspired to a series of transactions that diverted at least part of the funds required to be used on the Bay City Academy project to the Ingersolls’ personal bank account at Fifth-Third Bank.”


While the government has previously stated its position that "Steven Ingersoll misused his authority to improperly advance himself funds from the Academy", an October filing revealed the government considers the Grand Traverse Academy's practice of reflecting those advances in its fiscal audits as "accounts receivable" as "prohibited by law".

And while Jan Geht is focused on defending Ingersoll against the tax evasion counts, longtime business associate Mark Noss appears to employ the usual double-talk in his attempt to defend Ingersoll in the court of public opinion.

The theory du jour?
“It was the management fee that was budgeted for Smart Schools, and as the fiscal year came to a close and there was not enough, the books were not going to balance, Smart Schools was generous enough to either pay back or pledge back money over a period of time,” said Noss in the article.

While Noss uses the "hand in the cookie jar" excuse, he neglects to explain (likely because the Record-Eagle reporter didn't pose the question) the financial resolution of that "generous" receivable.

The Academy receivable was satisfied by Ingersoll's Smart Schools Management, Inc. in the first 60 days of the subsequent fiscal year with earnings drawn against the prospective fiscal year's budgeted Academy funds.

That's right—Ingersoll used taxpayer funds provided by the federal government and the State of Michigan to satisfy his "generous" receivable.

Money out, money in! 


SIR, MAY I REMIND YOU THAT YOU ARE UNDER OATH!


It will be interesting to observe Mark Noss on the witness stand next February, attempting to answer a federal prosecutor's incisive questions about the June 13, 2013 demand letter.

Wonder if he'll have such a "relaxed view" about that $3.5 million when he's under oath? 










Friday, November 28, 2014

ROBBING PETER TO PAY...PETER: The "Contribution Receivable" Shell Game Continues!


EXCLUSIVE REPORT


Recently released fiscal report reveals weak internal controls at the Bay City Academy, management's "evidence of approval" for purchase orders over $500 is "not documented", no proof the Academy's Superintendent reviewed monthly bank reconciliations—and that's just the beginning. 






THE CONTRIBUTION RECEIVABLE SHUFFLE: THREE-CARD MONTE WITH YOUR MONEY

Imagine that I promise to rebate money you've paid me for a service and you book it as a "receivable"—except when I finally make good on my obligation I use your own money.

The newly-released 2014 Bay City Academy financial statements reveal that this financial shell game was used by Steven Ingersoll's Smart Schools Management of Bay City LLC back in August.

According to its official report, the Bay City Academy's "Statement of Net Position" as of June 30, 2014 showed a $902,228 "Receivable from management company" as one of its assets. Additional assets listed were roughly $300,000 in cash and $760,195 due from "other governments".

In order to determine how this receivable landed on the Bay City Academy books, you'd have to scan down to Note 8 under "Subsequent Events". You'd find that the Academy "received a $430,000 cash contribution from SSB" which was included as a "receivable from management company" at June 30.

In addition, Note 8 reveals that the Academy also received "a $420,000 cash refund from SSB" for property lease payments made during the year that were subsequently "forgiven". 

And finally, the Academy received "a $52,228 cash refund from SSB" for "management fees" that were paid to SSB and recorded as a receivable from the management company.

Sounds simple, right? 

Except when you realize that Steve Ingersoll owns both the Bay City Academy and Smart Schools Management of Bay City LLC.

Here's where it gets complicated: sometime during August 2014, after the 2013-2014 fiscal year closed, $930,000 was paid to the Bay City Academy by Smart Schools Management of Bay City LLC.

But where did the money come from?

The financial statements—Note 8, to be specific—reveal that "funds totaling $930,000 were paid from the Academy bank account to SSB during the same timeframe as receipt of the receivable from the management company occurred."

In other words, Ingersoll's receivable to the Academy was satisfied by his company, Smart Schools Management of Bay City LLC, with money paid to SSB that had been drawn from the Academy's bank account.

If that bit of financial sleight of hand sounds a bit familiar, it should.

THREE-CARD MONTE: IT'S A THREE-PERSON CON

It’s critical to remember that three-card monte is a three person con. The roles are the dealer, who throws the cards in a way so as to mislead, a mark, who is the intended victim, and a shill who helps instill overconfidence in the mark’s level of insight to encourage him to play the game.

So what distinguishes three-card monte as a narrative trick is deception and misdirection. As I've indicated above, it's quite different from "cherry picking", in that it is not merely expunging unflattering elements so as to present an unduly rosy picture, but engaging in deliberate deception.
 

According to a September 14, 2014 document issued by the Grand Traverse Academy Board in support of Steve Ingersoll, the same method was used to purportedly "satisfy" the Smart Schools Management receivables booked by the GTA.

The Traverse City school issued its defense of Ingersoll, focusing on the Board's now-debunked claim that Ingersoll's "prepayment" was really just a "rebate".

In the excerpt shown above, the Board claims that management fees were "reduced" and lease obligations (Ingersoll's "promise" to lease space at the Grand Traverse Academy) were booked as receivables from SSM to GTA "according to GTA's need at the last board meeting of each fiscal year."

The Board continues, revealing that the "GTA receivable was satisfied by SSM in the first 60 days of the subsequent fiscal year typically in part with earnings drawn against the prospective fiscal year's budgeted GTA funds."

Not satisfied with mere puffery, the Grand Traverse Academy Board kicks its overstatement into hyperbole—asserting that the "controversial $1.6 million 'prepaid' is in actuality the remainder of nearly $5 million of earnings that SSM promised to pay to GTA according to its needs."

Come on, no one really believes that any more!

And it's likely the GTA Board didn't really believe it either when the "History" document was released, especially in light of the recent revelation on this blog that the Board had been pursuing the return of over $3.5 million dollars from Ingersoll since 2012!

It looks to Miss Fortune that Ingersoll wants to have his cake...especially when taxpayers fork over the money! After all, as Ingersoll's been known to tell his employees, it's just "money in, money out"!

MORE NOTES ON A SCANDAL

The Bay City Academy's fiscal statements also highlight significant weakness in the school's "financial controls", with some of the scrutiny landing squarely on Superintendent Brian Lynch.

For example, while noting that the bank reconciliations are supposed to be reviewed by the Superintendent, evidence of the review "is not documented". The report recommends that Lynch "initial and date" the monthly bank reconciliation to document any "independent review".

While the Academy's "internal controls" over the "cash disbursement process" require the management company to approve purchase orders "greater than $500", evidence of those approvals is "not documented".

In a note that was repeated from the previous year, the report notes that the "Academy has collected and is holding funds on behalf of certain student groups". The auditor recommends that the Bay City Academy deposit those funds in a "separate account to promote segregation of these monies and to provide transparency of activity regarding these funds."

Oh no, not the "T" word!


I won't hold my breathe waiting for the Bay City Academy to implement that recommendation.