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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.

2 comments:

  1. Can't wait to read this. Assuming the superintendent referred to is Brian Lynch, not one person should be surprised at the lack of competent oversight. Mr. Insurance Agent turned Superintendent due to father-in-law ties had no education or training in school leadership. I am sure he is being paid well for his "work".

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  2. Hopefully Mr. Lynch and his father-in-law, Mr. Noss, will be on the 'hot seat' when Ingersoll's Federal criminal trial starts. The Ingersoll House of Cards and Fraud should really begin to fall, and hopefully, for innocent tax payers, real soon.

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