Monday, August 10, 2015

"STINK TEST" RESULTS: Yes, We're Gonna Get All That Money Back...Psych!

After two years of dicking around, it appears that the Grand Traverse Academy Board of Directors has finally petered out...and officially decided to stop pretending and admit that there's no real effort to collect the estimated $1.67 million in public tax dollars owed to the Traverse City charter school by its vaunted “founder”, Steven Ingersoll.

Yes, mere months after the two year anniversary of the Board's May 20, 2013 meeting with attorney Margaret Hackett, called on behalf of Steven Ingersoll by then Board President Mark Noss so Ingersoll could “explain his view of his $3.5 million dollar indebtedness” to the Grand Traverse Academy, the Board's attorney confirmed to Miss Fortune that the charter school will take no steps to recover what Hackett herself termed during Ingersoll's trial as a “significant unauthorized transfer of funds.” 

Miss Fortune puts the past two years under a microscope, and subjects the Board's decision to walk away from a pile of taxpayer cash to what Jon Stewart himself might have called the “stink test”.

Hold your noses, people!

"I DO SOLEMNLY SWEAR"...Board Is Publicly And Fiscally Responsible 

Under Michigan law, charter school board members are supposed to oversee the finances of their school, maintain independence from their management company and make information available to the public.

In addition, as sworn public officials, charter school board members have a fiduciary responsibility for the assets, finances and investments of the school. Legally required to act in the best interest of another party (taxpayers, in the case of public school academies), board members must determine whether public tax dollars are spent in a good and sensible way.

In its eight-part 2014 series on Michigan's charter schools, the Detroit Free Press quoted Peter Henning, a former federal prosecutor and professor of law at Wayne State University:

“Once you take that oath of office,” he said, “you have a fiduciary duty to the public — you have to put the public’s interest before your own.”

While there are few precedents for establishing the limits of a board’s liability when organizational funds have been embezzled, it is generally clear that if board members have acted within their fiduciary capacity and have not been grossly negligent in their oversight of the organization’s funds, they cannot be held liable for the stolen funds. 

So what should a board do once it suspects or has discovered evidence of embezzlement? 

And could the activities the Grand Traverse Academy's Board of Directors undertook after confronting Steven Ingersoll on May 20, 2013 about his $3.5 million dollar debt create potential personal liability for those Board members?

Let's compare what they did...and what activities experts recommend a board undertake.


The Board’s first responsibility is to investigate the alleged crime.  The treasurer, legal counsel, and forensic accountant and/or auditor should make a good faith attempt to determine the extent of the theft, examining all records available to pull together whatever evidence there might be.  It is a good idea to undertake a diligent audit of the records prior to getting law enforcement involved.

In the case of the Grand Traverse Academy, however, the evidence indicates that Ingersoll's debt to the school grew over a period of roughly seven years. 

The amount of Ingersoll's annual management fee between 2007-2012 was subject to reduction in a mutually agreeable amount in any school year if extenuating circumstances make the entire annual fee inappropriate. 

At the beginning of each fiscal year between 2007-2012, Steven Ingersoll advanced (usually in one lump sum), his annual Smart Schools Management/Grand Traverse Academy management fee. 

Although based on Board-approved preliminary budget figures, Ingersoll’s management fees were later adjusted downward after actual budgets are calculated. 

However, Ingersoll withholds repayment of the difference each year during this six-year period.

For years, the Grand Traverse Academy had carried Ingersoll’s growing debt on its books, characterizing it variously as a receivable, a related party receivable or a prepaid expense.

While it appears the Board did not undertake a full forensic audit, it did engage Traverse City CPA firm Dennis, Gartland & Neirgarth to “verify the amount recorded as accounts receivable” on the Academy's books. But that forensic report wasn't issued until September 10, 2013, three months after the Academy sent Steven Ingersoll a letter demanding repayment of roughly $3.5 million dollars.

The June 13, 2013 letter, shown at left, cites a figure “calculated by Dr. Ingersol (sic) as indicated to be due as of June 30, 2012.”

So did the Grand Traverse Academy Board, including members Mark Noss and Brad Habermehl during that 2012-2013 term, make a good faith attempt to determine the extent of the theft, examining all records available to pull together whatever evidence there might be? 

It appears they did not, relying instead on figures provided by Steven Ingersoll. 

On a scale of one to ten, Miss Fortune's Stink-O-Meter reads “Five”.


Experts suggest once an organization has sufficient evidence that there has been a misappropriation of funds, the alleged perpetrator must be confronted and given an opportunity to give his or her side of the story. If the individual cannot fully explain the missing funds, the suspected individual should immediately be removed from a position of authority or by termination of service. 

If there is serious concern that the individual will attempt to cover up the misappropriation, the board may want to delay the confrontation while more evidence is established.

In either event, experts suggest an organization consider limiting the individual's access to funds after the confrontation.

Did that happen in the case of the Grand Traverse Academy?

No, it did not. Although attorney Margaret Hackett (who attended the May 20, 2013 meeting) testified during Steven Ingersoll's federal trial that Ingersoll revealed that he was under federal tax investigation during the meeting, he told the Grand Traverse Academy board he could not afford to pay his $3.5 million dollar Academy debt...and his income taxes. 

Instead of severing its relationship with Ingersoll's Smart Schools Management, Inc. or even limiting Ingersoll's access to the Grand Traverse Academy's funds, the Board made an arrangement with Ingersoll. 

The Academy's 2013 audit report revealed that Smart Schools Management 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 Smart Schools to work off the prepayment by partially reducing cash transfers for future management fees through June 2016.

In plain language, the Academy would simply deduct the $2.3 million overcharge--in three installments--from Smart Schools' expected future management fees.

According to the 2013 financial audit, the prepaid management fee “reductions” were scheduled to be received from Ingersoll's Smart Schools Management, Inc. as follows:

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

On a scale of one to ten, Miss Fortune's Stink-O-Meter reads “Ten”. 

Leaving Ingersoll with control of the Grand Traverse Academy's money for nearly a year after the May 20, 2013 meeting until just days before he was indicted stinks on dry ice.



Experts recommend an organization needs to carefully consider any decision to report the incident to governmental authorities. Such disclosure could potentially lead to significant negative media publicity for the organization. Some organizations have been able to quietly have the stolen funds returned by the perpetrator, averting the risk of bad press and undue harm to the organization’s reputation. In situations where there are no funds available to be returned, the board or executive staff may have no choice but to report the crime.

Aside from reporting the incident to law enforcement and criminal prosecutors, the organization may also need to disclose in its annual Form 990 whether it became aware during the year of any significant diversion of the organization’s assets.  The organization will need to disclose the nature and amounts of the diversion, and corrective actions taken, although the person who diverted the assets should not be identified by name.

So, did that happen? 


On a scale of one to ten, Miss Fortune's Stink-O-Meter reads “Ten”.


It would appear that the Grand Traverse Academy Board has a fiduciary responsibility to attempt to have the funds returned. But there's an “Easter egg” hidden deep within the former management contract between the Academy and Smart Schools Management, Inc.—an alternative dispute resolution clause that restricts the Academy to arbitrating any dispute, apparently even the return of millions of dollars.

As I exclusively revealed on this blog yesterday, the Grand Traverse Academy Board of Directors has formally decided against taking any legal action to recover the estimated $1.67 million dollars owed to the Traverse City charter school by its former management company, Ingersoll’s Smart Schools Management, Inc. 

Kerry Morgan, the Board's attorney, responded late Friday afternoon to my inquiry about the status of its recovery effort, stating exclusively in an email to Miss Fortune that “litigation is legally precluded because the SSM and GTA contract contains a mandatory arbitration clause. Thus, a lawsuit is not a legal option.” 

And although a July 9 Interlochen Public Radio interview featured Board President Brad Habermehl claiming that the school’s attorney was “looking at options for recovering the $1.6 million”, including bringing in an outside arbitrator, Morgan contradicted Habermehl's earlier assertion.Morgan revealed in his August 6 email that “the [Grand Traverse Academy] Board is not inclined to file an arbitration demand either.”

In his email, Morgan stated “the hazards of arbitration weigh against recovery.” Claiming that “too much publicity surrounding this case has lacked this objectivity”, Morgan continued, saying “considering legal action requires a sober assessment of the likelihood of success on the merits.”

On the whole, Morgan revealed, the Board’s assessment of the relevant facts “weigh against arbitration.”

“Second, in addition to the hazards of arbitration, the practicality of obtaining an uncollectable judgment also weigh against arbitration.”

Continuing in the email, Morgan states the “United States also asserts Ingersoll owes $1,673,025 in back taxes; with applicable penalties and interest, the total is $2,699,673.48. Several Ingersoll properties in Bay City are also foreclosed.  These large debts and claims suggest strongly that Ingersoll is, has been and will be uncollectable.  If Ingersoll is imprisoned, an arbitration proceeding without his physical ability to appear is shortsighted. SSM as a wholly controlled and funded entity of Ingersoll shares this same uncollectable fate.”

All in all, according to Kerry Morgan, any GTA recovery is “remote”. 

And although Miss Fortune presumes there must be an exception to that arbitration clause for fraud, on a scale of one to ten, Miss Fortune's Stink-O-Meter reads “Ten”. 

Oh, and that arbitration clause? It appears in the management contract the Grand Traverse Academy has with Mark Noss and his Full Spectrum Management.


  1. Thus is utterly ridiculous. I do not believe that the clause exempting Ingersoll would stand up in court. Seems like embezzelment is a pretty serious crime.
    Also, it us quite obvious that the board, Noss, Lake Superior State University and Ingersoll are in cahoots. Which means Ingersoll still has his dirty fingers in the pot. He has just given the pot to Noss, so it looks like everything is legit.
    Time for the government and the State of Michigan to take over these schools.
    I want my money back!
    I want everyone to get their money back!
    How many overseas bank accounts are there?
    This needs to be taken care of once and for all.
    Blatant misappropriation across the board.

  2. It would be fun to put both contracts side by side and see just how similar they are. Mark Noss wouldn't pull out the white-out and replace "Smart Schools LLC" with "Full Spectrum LLC," now would he?

    Up North Progressive

  3. White out? Good laugh. Ingersoll emails him one to change names.

  4. Of course Noss, Habermehl & company are not suing Ingersoll...they're all in it together! Do you honestly think they'd risk the exposure of a civil lawsuit?