But the train don't run by here no more
Poor poor pitiful me
Poor poor pitiful me, poor poor pitiful me
All these IRS boys won't let me be
Lord have mercy on me
Woe woe is me
YOU GET FREE RENT, YOU GET FREE RENT...BUT WHAT ABOUT THE BANKS?
On July 14, 2016, U. S. National Bank Association, the trustee of a $2.8 million municipal bond issued August 1, 2001 on behalf of the Concord Academy-Antrim, held a public conference call with Mitten Educational Management's Michael Randel regarding the building currently housing Mancelona's North Central Academy. (The NCA location is part of the Bay City Academy, which is expected to appear on this year's Michigan priority school closure list.)
Randel and his business partner, former Bay City Academy superintendent Brian Lynch, manage the charter school owned by convicted felon Steven Ingersoll.
During the call, which I listened to during its now-expired replay period, Randel managed to convince U. S. Bank reps Bill Smith and Sandra Spivey that the Bay City Academy was in such "dire straits" that it could not afford a $5,000 monthly lease payment.
The Concord Academy’s authorizer, Lake Superior State University, voted in 2012 to terminate the school’s charter due to “poor academic performance and mismanagement”. As a result, the school closed at the end of the 2011-2012 school year and the bonds defaulted.
For the next three subsequent academic years, the facility was leased to the Bay City Academy. (In 2012, Lake Superior State University transferred the Concord Academy’s charter to Steven Ingersoll for the North Central Academy.) After reviving its lapsed Michigan corporate existence on January 25, 2016, the Concord Academy, with U. S. Bank's approval, transferred the Mancelona building's title to the Bay City Academy.
It was registered in Antrim County's Register of Deeds office on February 29, 2016.
The building lease expired on July 31, 2015, and was not formally extended, although the Bay City Academy continued to occupy the building rent-free. According to documents filed by U. S. Bank, the Bay City Academy agreed to “occupy, protect, insure the premises” through the conclusion of the 2015-2016 school year.
During the discussion regarding the Bay City Academy's finances, Randel asserted the charter school was left in such a pitiable financial position by Ingersoll's Smart Schools Management, which Randel said "overspent".
Looks like CPA Randel must not have read the Bay City Academy's June 2015 financial audit very closely. If he had, he may have noticed this information: According to the 2015 financial report, the hobbled charter school founded and formerly managed by convicted felon Ingersoll incurred a significant operating deficit in 2015, resulting in a cash flow shortage — as of June 30, 2015, the Academy's current liabilities exceeded its current assets by $1,374,477.
In addition to calling out Steven Ingersoll's longtime pattern of paying his Smart Schools Management expenditures without providing a whiff of documentation, the report placed blame for much of the financial fiasco squarely at the feet of the school's Board of Directors.
Under Michigan state law, the Board of Directors has ultimate oversight responsibility for the school district's operations. Stating that their finding was a result of observation and inquiry with the Academy's administration, the auditors determined the deficit was result of an overreliance on Smart Schools Management for financial oversight. As a result, there was “a lack of appropriate administrative oversight by the Board of Directors over the Academy's finances during the year. The effect of this condition resulted in actual expenditures exceeding budgeted amounts, and a year end deficit fund balance.”
Noting the Board's so-called overreliance, independent auditor Weinlander Fitzhugh (which effectively restated results from the previous three fiscal years) examined invoices from SSM and selected certain items on those invoices for examination of supporting documentation. For the items selected, the supporting documentation was “incomplete, insufficient or nonexistent”.
“SSM transferred the entire annual management fee and a significant portion of the annual lease payment in July 2014, the first month of the fiscal year. These transfers were made prior to SSM earning the right to these payments. In addition, the contract with SSM did not include an objective measure to calculate the annual management fee.”
If that bit of Bay City Academy financial alchemy sounds familiar, it should: it's the same ratfuck scheme Steven Ingersoll admitted employing during his plunder of millions from the Grand Traverse Academy!
And, even better, Ingersoll admitted it under oath during questioning by Assistant U. S. Attorney Janet Parker on December 9, 2015. In this excerpt, Parker deftly takes Ingersoll through a line of questioning that uncovers the method he used to
Q. Doesn't the rebate affect expenditures by lowering the management fee?
Q. And also -- there was another component to the rebate, wasn't there? It was not just a management fee, but it was also a lease component?
A. Yeah, that's on the revenue side, and the management fee on the expense side, that's right.
Q. Right. And the -- why don't I put it this way: Can you explain to the Court how the amount of the lease was determined.
A. Well, as -- no, I can't explain that, other than the sum of the reduced management fee plus the gross amount of the lease. The lease was written to be determined -- I think the language in it said a retrospective determination at year-end. Of course, the reason it was written that way was to use it as a mechanism by which -- to influence that rebate position, so -- so I can't give you an exact -- I can't give you a definition as to how those -- the number was arrived at. It was well -- I can't say.
Q. Well, who arrived at that number?
A. I did pretty much.
Q. All right. So you arrived at a number that was based on what?
A. The primary driver of that was the amount of money that was required, amount of support, I should say, that was required to balance GTA's books for that fiscal year.
A. And that had to be split between the vehicle for revenue enhancement versus vehicle -- plus vehicle for expenditure reduction, management fee.
Q. Why would you split it between those two things?
A. I don't know.
Q. It was your decision, wasn't it?
A. Are you referring to the creation of this methodology or a specific year, for example?
Q. I'm referring to why would you opt as a methodology to, in order to make things not show a deficit, attribute part of the adjustment in your management fees and use the lease to the other side of the equation to complete the necessary adjustment?
A. I can't tell you why that is. Both of those method --
Q. Was -- I'm sorry. If you can't tell me why --
A. I guess I can say the why for both of those was the same, to create a methodology to deliver the support that the Academy needed to balance its books.
Q. Okay. And at the start of the year, was there a lease amount in the budget?
A. Most times.
Q. At the end of the year, would there be any relationship between that budgeted amount and what was in the final budget, or would that figure be based on the need to make the books look balanced?
A. It was -- the amounts were based on what it would take to balance the books at the end of the year –
Q. All right.
A. -- and the beginning was an estimated circumstance.
Q. All right. And the bottom line is you never paid that amount?
A. Well, that's not quite true.
Q. Well, did you actually pay the lease amount that is included in the final budget to GTA?
Q. Or was that part of the receivable?
A. It was part of the receivable.
Q. Okay. And when you actually paid it, did you actually transfer that amount to GTA?
THE COURT: Now, you can answer the same question with respect to the management fee. They're two different questions.
MS. PARKER: Right.
BY MS. PARKER:
Q. Did you actually pay the management fee?
Q. Explain when and how you actually paid that management fee.
A. In the first two months -- within the first two months of the prospective fiscal year, the rebate total in the preceding fiscal year was paid by actual transfer of monies from Smart Schools to GTA.
Q. All right.
A. Simultaneously, thereabouts, sums of money from GTA were trans -- that were budget authorized in the previous year were transferred to SSM to supply the money to do so.
Q. In other words, you used the next year's money to pay the last year?
A. That is correct.
Q. And that is why the receivable kept growing?
Q. Then why did the receivable -- the receivable is a combination of the management fee and the lease, correct?
THE COURT: Can I stop for just a moment.
MS. PARKER: Sure.
THE COURT: This is not the time to be curt with the prosecutor. You know these answers.
THE WITNESS (INGERSOLL): Well --
THE COURT: This is the time to explain it to her as well as you can.
THE WITNESS: I'll do that. So if -- if you'd like me to reframe your questions, I'll do that. Here's what happened. When the rebate was determined, what it should be, it was booked as a receivable, and it was -- had two components; management fee and lease, and the sum of those two totaled the amount of the rebate. At the same time --
BY MS. PARKER:
Q. All right. How is that different from what I asked you before and you said no?
A. Well, I don't know -- well, that is quite different. That's --
Q. Please inform me.
A. I'm trying to. When you said that -- do you want me to -- never mind. I'll just carry on with what I'm saying and then I think it'll be clear. So at the end of the fiscal year, whatever the need was, it was accomplished by those two elements that became in their sum the total of the receivable.
At the same board meeting that the finalization of the lease amount and the reduction of the management fee occurred, the authorization for revenues to be delivered to Smart Schools for the prospective fiscal year was also established.
And if you tally up the line items that Smart Schools was authorized to receive, it's about six -- 6.6 or thereabouts each year. Out of that money, a good share of it anyway, would be drawn early in the fiscal year, that is in the first two months to help Smart Schools be able to service the created rebate.
So in a sense, the -- your point was, so you used GTA's money to pay the rebate. Well, that's not technically correct. I used SSM's money that was authorized by GTA to repay the rebate, so that's the mechanism that we were operating under each of those years.
Q. And this is -- you recognize that this was something that had to be done in the first 60 days of the new fiscal year under Government accounting principles?
A. That's what I understood, yes.
Q. So you have some familiarity with Government accounting principles?
A. I do.
Q. Are you familiar with the term kiting?
A. I know what that means.
Q. All right. What is your understanding of what that means?
A. A bank account that is out of money gets filled with money by drawing money from another bank account that is out of money, that then creates a, you know, a negative balance over here.
Q. Right. And then you make a draw against the first bank account to replenish the second bank account, back and forth, correct?
A. I don't think this is quite the same, if that's what you're implying.
Q. Well, I'm not asking your opinion on that. What I'm asking is why does the rebate continue to grow if you're paying it in full?
A. It was paid in full. The rebate is more a function of the operational activity through the year relative to the funding sources, that is the expenditures through the year versus -- revenues versus expenditures through the year. That's what determined the change in the rebate amount.
Q. But the rebate continues to grow because you've paid this year's money into last year's and now have to take more to keep the process going?
A. Well, the lion's share of the balance of that rebate occurred '07, '08 and '09 if you look at the --
Q. When -- I'm not asking you that.
Q. It continued to grow. It grew -- by the time of the spring of 2012 it was $3.5 million?
Q. Yes. It was smaller in the preceding year and even smaller in the year before that?
A. That is true.
Q. All right. So why?
A. The revenues were insufficient to cover the expenses and the amount of rebate -- the amount of infusion against the rebate that Smart Schools was able to put in -- the rebate grew by the fact that -- that the -- whenever the management fee was shrunken from 12 percent, that added to the rebate amount so every year –
Q. When, in your estimation, were you obligated to pay off that rebate to zero?
A. Say the question again, please.
Q. When were you obligated to pay that rebated sum to make it zero?
A. I don't think there was a definite date for that. I don't think that that rebate needed to be zero at any particular date. Well, at least until the separation of the -- I mean, the agreement was that at the end -- that became a conundrum of course because the plan was for me to -- once GTA was able to pay 12 percent, essentially –
Q. All right. Okay. I'm not sure that you're answering my question anymore.
A. Okay. All right.
Q. If you didn't feel that you were obligated to pay that to a zero by any particular date, what about that general accounting principle -- or government accounting principle 60 days?
A. I was obligated to pay that within a 60-day period.
Q. But then you create a new one?
A. Yeah, that's right.
Q. Just keep creating a new and larger one each year.
A. (Nodding head.)
If you were paying attention, unlike Michael Randel, you would have noticed that Ingersoll's so-called rebated continued to grow because he had to pay the current year's money into the previous year, and take even more money to keep the financial hamster wheel spinning.
And that's exactly what happened in three years at the Bay City Academy: Ingersoll's management rebate/lease contribution scheme allowed him to plunder nearly $1.4 million from his charter school.
Hell, he was so proud of it, he slipped it right into the annual audit reports!
Let's take the June 2014 report as an example.
In its "Statement of Net Position" (shown at left), the Bay City Academy reveals a $902,228 "receivable from management company" as an asset.
But if you read the balance of the 2014 report, you'll find this glittering piece of fool's gold, displayed under "Subsequent Events".
Ingersoll moved $930,000 from the Bay City Academy, moved it to his Smart Schools Bay City account, and then moved the money back to the Bay City Academy's account, effectively satisfying the receivable.
But then he established a new, and even larger, receivable. When Weinlander Fitzhugh completed the Bay City Academy's 2015 audit, it discovered Ingersoll had left the school holding the bag for a $1,364,917 deficit.
Ingersoll would call it a "rebate", but Randel tried to pass it off as "overspending".
But let's get back to the July 14 bond call.
With non-recourse custody of the Mancelona property, the Bay City Academy is not legally required to pay a mortgage, nor can it sell the building on its own.
Pleading for relief, Randel asserting the school was slowly moving toward profitability, and estimated a fall 2016 student population of 375 for its three buildings.
When asked about the Mancelona building's census, Randel insisted that "capacity" was 200 students, with last year's population at 164. Again, Randel provided incorrect information.
State of Michigan data indicates that the North Central Academy had 191 students in Mancelona, nearly the 200 student "in the black" population Randel projected.
However, the growth in Mancelona is offset by the plummeting population at the school's two Bay City locations: Madison Arts and Farragut campuses.
After Randel completed his poor-mouth pitch, he left the call. And that's when the real fun began!
Bill Smith and Sandra Spivey openly discussed the scant possibility of "alternative usage" of the Mancelona building, with Smith acknowledging the building was "in the middle of flipping nowhere".
The building had been listed for sale with a commercial real estate broker, priced initially at $890,000 in 2013 before dropping to $650,000 in 2015. There were no offers.
Spivey stated that although the bond holders have been stiffed, it was preferable to have the North Central Academy occupying the building rent-free than having it vacant and "becoming a meth lab" while it's again listed on the market.
A determination was made by U. S. Bank to allow the Bay City Academy to occupy the Mancelona building through the end of the 2016-2017 school year in return for heating, insuring and maintaining it.
On August 17, U. S. Bank officially notified bond holders that it had entered into a "forbearance agreement" with the Bay City Academy allowing it to occupy the Mancelona building rent-free. In addition, the Bay City Academy is required to report 2016-2017 enrollment figures to the bank by October 15, 2017.
If enrollment exceeds 425 students, the Bay City Academy will pay "50 percent of the cash flow attributable to the excess enrollment" to U. S. Bank as rent for the Mancelona building.
If the school's enrollment trend continues on its downward trajectory, that payment's unlikely to happen.
But what about the Bay City Academy's Madison Arts and Farragut buildings?
Looks like Lynch and Randel aren't paying any rent for those facilities either, and the Michigan Department of Education appears cool with that even though mortgages for both have "assignment-of-rents" provisions.
I'VE GOT MINE, EFF YOU!
An assignment-of-rents is a provision in a deed of trust or mortgage. The clause entitles the lender (in this case, Chemical Bank for the Madison Arts building and Wildfire Credit Union for the Farragut) to collect rents from the mortgaged property in the event of default by the borrower. This clause provides that during such default, all rents and incomes from the secured property will be paid directly to the lender to help reduce the outstanding loan balance.
Yeah, well tell that to a judge.
My research indicates that Steven Ingersoll is only concerned about his private residence when it comes to paying what he owes.
Even though one of Ingersoll's Traverse City neighbors (yes, he has a home there) purportedly wrote a "letter to the editor" that appeared in the August 17, 2016 Traverse City Record-Eagle, calling him a "stereotypical visionary" while decrying his "oppression", I should be so downtrodden!
Just a couple weeks before that letter appeared, Ingersoll came up with $8,198,22 to redeem his 1514 Center Avenue home from the Bay County Treasurer!
But has he paid the outstanding property taxes on 400 N. Madison, the Bay City Academy's Madison Arts campus?
And what about 301 N. Farragut, the Bay City Academy's Farragut campus?
Even though the Farragut building officially was forfeited to the Bay County Treasurer on March 16, 2016 following non-payment of property taxes for nearly three years, and Ingersoll defaulted on its mortgage (held by Wildfire Credit Union) June 18, 2016, he's still allowing Brian Lynch and Michael Randel to use that building without paying any rent.
And the Michigan Department of Education knows...and apparently doesn't give a shit!
In a July 6, 2016 email (shown above), Dan Hanrahan of the Michigan Department of Education's Office of State Aid and School Finance responded to a series of questions.
Even though the MDE approved the Bay City Academy's "sorry excuse" for a five-year deficit elimination plan, calling for $16.5 million dollars to be dumped into this festering stink hole, it apparently doesn't matter that Mitten Educational Management isn't paying rent to Steven Ingersoll.
As Hanrahan states, the duo can just utilize the money "for other operational costs".
Hmmm? Like more secret payoffs to Steven Ingersoll?
So when the taxpayers are left holding the bag for Ingersoll's $1.8 million USDA-backed Chemical Bank mortgage for the Madison Arts campus, what will Hanrahan say then?
If “one crook doesn’t ruin the whole pie”, just how many does it take?