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Wednesday, December 10, 2014

VENTURESOME CAPITAL: PREPAID EXPENSES, "DONATIONS", MISSING MILLIONS — AND A (FORMERLY) SECRET DELAWARE CORPORATION!

Part 3 of my exclusive Special Report —  it's worth the wait!

The Grand Traverse Academy Board hides Steven Ingersoll's multi-million dollar misappropriation by calling it a "prepaid expense"...and they hope you won't notice.

Act like a sheep? 

Don't be surprised when you're fleeced!

Steven Ingersoll's federal financial fraud trial has been delayed until February 10, 2015, but that hasn't stopped the ongoing discussion about his continuing impact on the Grand Traverse Academy.

This brief hiatus allows a closer look at three issues lingering over the Academy like flocking seagulls over a New Jersey landfill: prepaid expenses, rebates/donations, and the missing millions.

Since another information dump may confuse, your girl Miss Fortune has tapped into her visual side  — and created a simple diagram that explains it all for you, just like Sister Mary Ignatius.

Imagine that there are two parallel railroad tracks, one labeled "Prepaid Expense" and the other labeled "Related Party Receivable".

Then imagine those tracks converge and become one track under the name "Prepaid Expense".

But first, a palate-cleansing refresher course!

PREPAID EXPENSES 101

In standard accounting parlance, a prepaid expense is an asset that represents a payment made to a vendor in the current fiscal year that will provide a benefit beyond that year.


In fact, that's pretty much how the Grand Traverse Academy's 2006 fiscal audit defined the term, with a similar definition appearing in subsequent reports.

A few months back, I wrote a post comparing historic Grand Traverse Academy management fees with the school's prepaid expense levels from the fiscal year ending June 30, 2001 through June 30, 2013.

The chart shown above illustrated that post, using information drawn from official Grand Traverse Academy financial audit reports. 

However, in mid-September the Academy board released a document with the prosaic title, "History of the Grand Traverse Academy", in an apparent attempt to clarify the amounts listed as "prepaid expenses" in its audits.

The five-page document reads like a hagiography of Steven Ingersoll, with the only godlike quality not attributed to him is an ability to pee champagne!

It's not until you drill down in the document that you find the Board's explanation for the "prepaid expenses" shown in the Academy's fiscal audits: the "History" claims that Ingersoll's Smart Schools Management, Inc. provided financial support to Grand Traverse Academy by four methodologies. The four are direct donation, guarantee of debt, rebate of contractually authorized and budgeted earnings and an agreement to augment the Academy's revenue by leasing some of its facilities.


The table at left, taken directly from the Academy Board's "History" document, shows the earnings rebates and lease contributions Ingersoll reportedly made between 2005-2012.

You'll not that the earnings rebates do not match the "prepaid expense" line items taken directly from the Academy's audits.

The report goes on to reveal how the earnings rebates and lease contributions were treated at the Academy:

"Management fees were reduced and lease obligations were booked as receivables from SSM to GTA according to GTA’s need at the last board meeting of each fiscal year. This accrued a reduction in SSM earnings and an accounts receivable on GTA’s books. 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 GTA budgeted funds. GTA funds budgeted to and drawn by SSM were allocated to an account in GTA’s books called prepaid fees. The balance of the prepaid account thus arose from rebated earnings to GTA by SSM. These funds have been mischaracterized as an over draw by SSM when they actually represent SSM’s willingness to support the Academy by rebating earnings."

Okay, this dense fruitcake of copy is just begging for Miss Fortune's translation: 

At the end of each fiscal year, the Academy board needed to show a balanced budget. In order to make that balancing act happen, the Academy frequently needed Steven Ingersoll to reduce his management fee, and also kick in (on paper, at least) an amount described as a "lease contribution" for space occupied by Smart Schools Management, Inc. personnel at the Academy.

The amounts were booked as receivables, or money owed by Smart Schools Management, Inc. in the next fiscal year to the Grand Traverse Academy.

Smart Schools "satisfied the receivable" and paid the Academy in the first 60 days of the subsequent fiscal year using taxpayer money it had drawn from state and federal funds supplied to the Academy for Ingersoll's use on behalf of the charter school.


After the payment was received from Smart Schools, that money was reportedly parked in an account the Academy called "prepaid fees", with the balance of that "prepaid" account representing the so-called "rebated earnings" that Ingersoll "contributed" the previous fiscal year. 

And like money in the bank, those prepaid fees were expensed during the subsequent fiscal year after Ingersoll made the "donation", with that money going to offset Ingersoll's management fee.

However, it appears Ingersoll didn't really contribute or reduce his fees — he simply "paid it forward", rolling like a hamster on a wheel to keep the scheme that reimbursed him for money he'd pledged to donate the previous year in motion. And my examination reveals that it apparently required him to repeat the charade year after year!

Let's get back to the Academy five-page history.

Here's where they lost me: claiming 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."

That's an outright falsehood, but a nifty segue into the other side of those parallel tracks: related party receivables.

RELATED PARTY RECEIVABLES: WHO OWED THE GRAND TRAVERSE ACADEMY ALL THAT MONEY?


Remember those parallel trains? Well, related party receivable is heading down the track, on its way to a final convergence point in June 2013.

Over roughly the last five years, the Grand Traverse Academy has consistently carried on its books large amounts classified either as "amounts receivable from sources other than governmental units" or "related party receivables". 

In its 2010 audit, the Grand Traverse Academy revealed it was owed $2,715,251, which was classified as "amounts receivable from sources other than governmental units". 



The 2011 audit revealed that the Grand Traverse Academy was owed a whopping  $2,500,000 from "related parties", the first use of that classification.

It appears the "related party receivable" amount, which ballooned to well over $3.5 million by the 2012 audit, was likely solely attributable to Steven Ingersoll. 

After discovering Ingersoll's theft, the Grand Traverse Academy Board may have attempted to stave off any meaningful public disclosure of the loss, but time ran out. The government alleges Ingersoll took an estimated $3.5 million over the time period at issue, and the Academy's 2012 fiscal audit appears to confirm that, revealing an outstanding $3,548,319 "accounts receivable from related parties" in that year's audit...but there's much more.


On June 13, 2013, Traverse City attorney Doug Bishop, former counsel for the Grand Traverse Academy, issued a “demand letter” to Steven Ingersoll for the return of over $3.5 million.

In his letter, Bishop referenced the Academy's 2012 fiscal report in this statement: "It appears, at this point, that the amount due is at least $3,548,319.00, which, to our understanding, was a figure calculated by Dr. Ingersol (sic) as indicated to be due as of June 30, 2012."

 

Bishop was clearly referring to the 2012 audit financial note that revealed the "amounts receivable from related parties" was $3,548,319 and acknowledging that he and the Board knew the "party" was in fact Steven Ingersoll.

The party was over? Not so fast!

Within days of the letter being sent to Ingersoll and former Academy Board president Mark Noss, the 2013 fiscal year ended on June 30.

When the 2013 financial report was issued in late October, the $3,548,319.00 2012 "related party receivable" had been reclassified as a “prepaid expense” and cut to $2,338,980 ― a reduction of $1,209,339.
 

And that's where the parallel tracks converged and became one
― one that was called "prepaid expense".


By reclassifying Ingersoll's multi-million dollar "related party receivable" as a "prepaid expense", the Academy Board could now conflate the two, leaving an opportunity for bullshit statements like this to go unchallenged:

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.

 
No, it's not ― and the Board knows it.

That $1.6 million dollars, which began life as a "related party receivable" owed to the Academy by Steven Ingersoll's Smart Schools Management, Inc., was the wreckage of a promise made by Ingersoll to the Grand Traverse Academy: he would "work off" the remaining $2.38 million "related party receivable" he owed by accepting a smaller management fee each year for three years.

Except he got indicted...and fired.

And that money is still missing, and the Academy's Board has just written it off!

Tomorrow, in the final installment of this series, Miss Fortune reveals the strong-arm tactics Ingersoll's attorney used in his attempt to...well, you'll just have to come back tomorrow and see!

And the secret Delaware corporation, too! 




 











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