In my opinion, the story, while not grossly inaccurate, included several misleading statements, the most egregious of those erroneously attributes a legal conclusion to U. S. District Judge Thomas L. Ludington, who presided over Ingersoll's federal fraud trial and is currently overseeing the ongoing sentencing hearing, that he did not make.
And because the sentencing hearing is raising serious questions about Ingersoll's conduct at the Grand Traverse Academy (including his admission during a May 20, 2013 meeting that he owed the Traverse City charter school $3.5 million dollars), conduct that may trigger further criminal investigation, it's important that spin and possible misrepresentation of the existing evidence and testimony not go unanswered — even by Miss Fortune.
So while Mark Noss dismisses the solid information on this blog as "inaccurate media coverage", we'll examine the media spin of the IPR story and explore whether or not it stretches the boundaries of trust with intellectual dishonesty.
The NPR ethics handbook does require a disclaimer when there may be a possible conflict of interest:
"Conflicts of interest come in many shapes — financial holdings, romantic relationships, family ties, book deals, speaking engagements, and others. It's important to regularly review how our connections are entangled with the subjects of our reporting, and when necessary, to take action.
In minor cases, we might satisfy an apparent conflict by prominently disclosing it, and perhaps explaining to the public why it doesn't compromise our work. When presented with more significant conflicts that might affect our ongoing work, our best response is to avoid them. But some conflicts are unavoidable, and may require us to recuse ourselves from certain coverage."
However, in my opinion, several assertions in the story reveal the station may not have been "editorially blind" in its coverage of the Ingersoll case.
Okay, I know what you're thinking: Miss Fortune, you've already got the guy in an orange jumpsuit, sobbing as he writes home to Debbie begging for more commissary money while bunking with Bubba!
And you'd be right. I admit that after investigating the story for nearly two years, I have formed an opinion on whether or not there are grounds for further investigation (and potential criminal charges) relating to Ingersoll's financial shenanigans at the Grand Traverse Academy.
But like Donald Trump, I'm self-funded and not reliant on corporate sponsorships, money that might cause me to not-so-subtly twist and turn a story.
Let's look at three claims made in the story, including possible sentence enhancements, a so-called "forensic audit" undertaken in 2013 by the Grand Traverse Academy board, and these apparent conclusions:
“And so far, it appears Judge Thomas Ludington also sees it that way. After three days of testimony on this issue, the federal judge described the missing money as a concession; an amount Ingersoll conceded back to the school, money that was otherwise his to keep rightfully.”
One of the possible sentencing enhancements being discussed is whether Ingersoll abused his power (a fiduciary position of public trust) while running the Grand Traverse Academy.
Attorney Geht is quoted stating the judge can “take into account a host of factors not necessarily tied to the conviction”, which is accurate.
Ingersoll's sentence can be enhanced by two levels if the judge finds he had abused a position of trust in committing his crime. In Ingersoll's case, the prosecution is seeking an enhancement and argues Ingersoll had the requisite discretion and authority as the head of Smart Schools Management to warrant the abuse of trust enhancement.
But Geht says Ingersoll took no money from the Grand Traverse Academy, relying on what he terms a "forensic audit".
Splitting hairs, Geht states there's no money missing, only
"an accountant dispute about what is the appropriate level of disclosure.”
So what about this "forensic audit"? What was the scope of the examination, and what was its genesis?
And was Steven Ingersoll a philanthropist...or a thief?
DGN FORENSIC REVIEW
In July 2013, Grand Traverse Academy board's then-president Mark Noss received a "Forensic Audit Services" proposal from Traverse City-based public accounting firm Dennis, Gartland & Niergarth (DGN).
In the memo, DGN stated its understanding that Noss, on behalf of the Grand Traverse Academy, had been "advised to obtain an independent third party to verify the amount recorded as accounts receivable" on the Academy's financial statements by Steven Ingersoll's Smart Schools Management, Inc.
[NOTE: The Thrun Law firm's May 30, 2013 legal recommendation, titled "Funds Owed to Grand Traverse Academy by Steve Ingersoll and/or Smart Schools Management, Inc." urged the Grand Traverse Academy board to have Ingersoll's estimated $3.5 million dollar debt "verified by a forensic audit" performed by "an independent third party". Ingersoll had recorded his debt as an accounts receivable; Thrun disputed this characterization, calling the amount an "unauthorized transfer of approximately $3.5 million in public funds from the Academy to SSM".]
DGN's memo to Noss and the Grand Traverse Academy indicated the firm would review "bank statements for all Grand Traverse Academy bank accounts" between July 2011 and June 2013. The verification process was estimated by DGN to cost approximately $5,000.
On September 10, 2013, DGN issued its "Forensic Report" to the Grand Traverse Academy's Board and then-Superintendent, Kaye Mentley.
The report summarized the procedures performed regarding the outstanding balance with Smart Schools Management, Inc. as of June 30, 2013 ($2,338,980), including DGN's correspondence with Steven Ingersoll.
There were five general ledger accounts, plus various payroll and related benefits accounts used to record the transfers and transactions with Smart Schools Management.
According to DGN, the accounts used include accounts receivable, prepaid expense, lease of facilities, curriculum materials, and Smart Schools Management's Grand Traverse Academy management contract.
The DGN report revealed Ingersoll provided a "schedule of budgeted fees for the SSM management fee and curriculum development fee", for the years 2006-2013, which revealed that in addition to his management fee, Ingersoll was paid $300,000 for "curriculum development" for the year ended June 30, 2011.
DGN compared "budgeted amounts to the actual fees", and revealed a "cumulative downward adjustment" of $3,128,532, stating the downward adjustment was "part of a large receivable due from SSM and was recorded to prevent GTA from being in a deficit position".
The report identified another transaction contributing to SSM receivable, the "recording of rental income due from SSM".
The amounts varied widely during the fiscal years ending 2006-2013, and the rental income was not budgeted for by the Grand Traverse Academy each year.
Citing information provided by Ingersoll, DGN notes "there is no economic substance regarding the recording of rental income.
SSM occupies a small office within GTA; however, rental income has ranged from between $0 and $1,100,000 per year for the years ending 2006-2013."
DGN stated the firm "traced the cash transactions to the accounting records in all instances. There were no withdrawals or transfers unaccounted for in the accounting system."
However, DGN noted that there were "several cash transactions between SSM and GTA" during these periods. The cash transfers did not correlate with specific accounting transactions, but appear to be based on cash needs on any given day.
The method of recording cash transfers, withdrawals and expenses was inconsistent for the two fiscal years.
DGN reported that SSM appeared to "retroactively adjust the QuickBooks records to record invoices for payroll, management fees and curriculum development fees for the fiscal year ended June 30, 2013".
In its summary, DGN stated that "by any objective measure, the fee arrangement lacks economic substance and accountability, provides an opportunity for abuse, and is structured to potentially become a benefit of a private party. It permits SSM to maximize their fee in good years and reduce their fee in poor years, leaving the impression that SSM is forgoing payment for the benefit of GTA; when in actuality, SSM is holding GTA’s funds in the process. The Academy Board is charged with governance, stewardship and accountability for public funds. As such, it should consider the substance of this arrangement and compare it to arrangements for other charter schools."
DGN did not determine there was "no money missing", as Geht claimed, because it was not commissioned to uncover possible asset-theft fraud executed by Steven Ingersoll and others.
Although the Thrun Law Firm repeatedly urged the Grand Traverse Academy board to conduct a true forensic audit, the board opted instead for a narrowly-defined examination that would (and I quote directly from DGN's July 12, 2013 letter to Mark Noss) only "verify the amounts recorded as accounts receivable on the Grand Traverse Academy's financial statements".
Asset-theft fraud is using one's position in a company, usually as an employee, to deliberately misuse or steal company resources or assets for personal gain.
Here's the thing: a financial statement audit will usually not discover asset-theft fraud because the objective of the financial statement audit is to determine whether the financial statements fairly present the company's financial position.
For example, if an employee sets up a dummy vendor to siphon off company cash into his own account, the company's books will reflect this cash payment.
Even though the transaction is fraudulent, the company's financial statements will accurately reflect this transaction.
An auditor conducting a financial statement audit cannot examine every transaction in the company's business records and is not charged with discovering asset-theft fraud.
If the financial statements fairly state the company's financial position, the auditor would be justified in issuing an unqualified opinion, even though undetected asset-theft fraud is present.
FAUX JUDICIAL CONCLUSIONS
The most troubling element of the story are the claims made about Judge Ludington's opinions, including the assertion that Ludington had determined the missing Grand Traverse Academy millions was money that Steven Ingersoll was "rightfully" entitled to.
Here are the IPR quotes, which seem to indicate Ludington had reached a conclusion on Ingersoll's so-called entitlement:
“The audit seems to agree that the missing money was a rebate, or a series of rebates, offers for a discount on Ingersoll’s management fees after he had already received full payment. Auditors referred to it as a “cumulative downward adjustment.”
And so far, it appears Judge Thomas Ludington also sees it that way.
After three days of testimony on this issue, the federal judge described the missing money as a concession; an amount Ingersoll conceded back to the school, money that was otherwise his to keep rightfully.
The judge said he plans to focus the rest of the hearing on what obligation Ingersoll had to pay that concession once he offered it.”
But a close examination of the October 22, 2015 official sentencing hearing transcript tells a much different story.
Read it carefully, especially the highlighted passages.
THE COURT: Well, I've got a fairly busy afternoon this afternoon. That's why I think we kind of need to observe the 1:00 today, so you may step down at this stage.
THE WITNESS: Thank you.
THE COURT: But at least from the standpoint of where we are in proofs with respect to this one guideline variable, I can at least offer, as the finder of fact, at least the focus that I have in reaching some conclusions here.
What I think we have learned is that there was a point in time at which there was -- there were written contractual arrangements for SSM to be compensated for the operation of the GTA Academy -- or GT Academy at 12 percent, and it remained an aspirational goal, from what I've been able to determine from the present witness' testimony, prospectively.
There's an event that takes place someplace between 2005 and 2007, I believe based on the bond refinancing of a certain amount of debt, where there were some imposed covenant limitations on either the use or maintenance of funds. Those covenants can take a number of different -- number of different forms, but it has been explained by a witness that a change needed to happen where the 12 percent could no longer be express, and as was emphasized by the witness here just a couple of moments ago, looking at a later agreement, that the agreement changed to a reasonable amount that remained informally and aspirationally at 12 percent but no greater than 2 million.
But there's also a period of time that we've not heard about where the school faced a deficit situation and had the 12 percent been fully enforced, and I think this is probably around 2005, where SSM had to make a concession, because if they got the full amount of the funds GTA – from GTA, they would be in a deficit circumstance; they would be in trouble with the state; they may likely have been insolvent, and it's at that juncture that concessions begin to be made.
Indeed, as I understand it, Mr. Ingersoll says, I'll concede my fee.
Ultimately we hear testimony that it has the net effect of reducing the fee to someplace in the range of 6 to 7 percent, and I'll concede that fee in the interest of the organization continuing.
Indeed the present witness indicated that had he not done that, it was the board's view that the school would probably have collapsed at that period of time and never hit the -- hit its stride that it began to in approximately 2010, '11 and '12.
But the agreement that we have says nothing about the reduction in the fee, but at some point, Mr. Henning believes there's an amendment, at least he reaches that conclusion for purposes of accounting by 2005, and that's where he begins to record the account receivable and it ends up on the balance sheet, believing not only that the -- Mr. Ingersoll's conceding SSM's fee, but that SSM was actually going to write a check and not carry that as a receivable but actually pay it.
At least in my view at this stage, I have a hard time understanding how conceding the fee is in anyway a violation of a public or private trust, except if that was truly an amendment, an enforceable amendment, then not repaying the funds or paying -- placing them in a commercially difficult manner in which to recover might fit the variable.
Because if he agreed that he was obligated to repay that fee because of the amendment to his fee arrangement, he needed to repay them or not extract them from SSM such that GTA couldn't recover them in a commercially unreasonable way.
So prospectively, my focus is not on the initial arrangement but what the circumstances were relating to the amendment and how it was implemented, and then the last issue is what happened to those funds once they got to SSM?
Were they extracted in a way that GTA could never sue and recover?
Because there were certainly no arrangements with respect to, for example, collateral or any other commercial vehicle of which to make sure that those payments would be repaid, and those are areas that I think we need to focus on.
Boy, I don't see where Ludington determined that the missing money, which he termed a "concession" by Ingersoll in recognition of financial guidelines required by the Grand Traverse Academy's 2007 bond issue, was his to "keep rightfully".
In fact, it appears to be just the opposite: he's urging both the prosecution and defense to hone in on Ingersoll's fee payment pattern (taking a lump sum at the beginning of the school year based on an estimated budget), especially critical of the possibility that there may be no arrangements to make sure those overpayments would be repaid.
Here's one thing the IPR story didn't tell you: although early management agreements between Steven Ingersoll's Smart Schools Management and the Grand Traverse Academy allowed Smart Schools to receive 12% of the Academy's gross revenues, that practice was suspended with a new contract beginning July 1, 2009.
Yes, the 2007 bond issue actually required the Academy to balance its books, and Ingersoll's management agreement was modified to curtail the amount of money he was paid.
And even though on May 4, 2012 the Academy board passed a "reimbursement resolution", you can see at left that board intended to "extend to Smart Schools Management, Inc. its financial resources in an amount equal to 12% of total revenue as financial conditions allow."
You know what they say about good intentions: the road to hell is paved with them.
In my opinion, it appears Judge Ludington is walking a legal fine line, seeking to determine whether Ingersoll, after his management contract was revised in 2009 and steep financial "concessions" were made, plundered the Traverse City charter school out of millions of taxpayer dollars.
But that's not the impression IPR's interview with Steven Ingersoll's attorney, Jan Geht, left you with.
And that's wrong.
Now, about that commissary list...