“A draft June balance sheet for GTA listed a $253,000 prepaid expense to “SSM” — an acronym for Ingersoll's Smart Schools Management, which formerly managed GTA. Mark Noss, who runs FSM, said the label was a holdover from when his company received accounting software during the transition from SSM.
“It’s been a huge, huge mistake,” he said. “It didn’t take long for that to get out.” A revised balance sheet provided GTA board members didn't include any reference to “SSM.”
Traverse City Record-Eagle
September 20, 2016
Days before the September 20, 2016 story ran in the Record-Eagle, quoting Mark Noss dismissing concerns about the re-emergence of “prepaid expense” as a budget-balancing device at the Grand Traverse Academy by terming it a “huge, huge mistake” (with the newspaper uncritically regurgitating that assertion as fact), its use in a June 2016 balance sheet by Noss' Full Spectrum Management raised the eyebrows of a CPA in Lake Superior State University's Charter School office.
In a September 14, 2016 email to Grand Traverse Academy board president Lesley Werth, LSSU accountant Rebecca Clawson issued a follow-up email regarding their conversation earlier that day about the Traverse City charter school's proposed expansion.
In her email, Clawson pointedly questioned what she designated an “unusually large” $253,449.61 prepaid asset.
An “unusually large” prepaid asset.
The balance sheet in question, shown at left, reveals the $253,449.61 “Prepaid Expenses – SSM” line item.
The matter was addressed on this blog in a September 20, 2016 post titled “NO LAUGHING MATTER”.
As you may expect, I was skeptical of Noss' explanation last September.
OK, I called it an “excuse” and wondered why the Record-Eagle didn't seek to verify that sorry-ass explanation.
And I called the assertion that the SSM “label was a holdover from when his company received accounting software during the transition”, which popped up nearly 2.5 years after the transfer from Ingersoll to Noss and Full Spectrum, crazy.
Clawson's email was among 240 pages of internal documents I received yesterday from Lake Superior State University in response to my December 2016 Freedom of Information Act request.
Could we be seeing a revival of the key method Steven Ingersoll utilized to misappropriate at least $3.5 million from the Grand Traverse Academy—a so-called management fee rebate?
You be the judge.
Here's some background: you'll remember that between 2007-2012, Steven Ingersoll paid himself his entire Grand Traverse Academy management fee in a lump sum at the beginning of each school year based on an estimated budget. At the end of each fiscal year, Ingersoll booked his annual overpayment as a “receivable”, and used school funds at the beginning of the following fiscal year to repay the receivable, and then created a new (and even larger) receivable each year.
Let's look at the email; my comments are in red.
The CSO would like some additional information regarding the building project for GTA’s proposed expansion. The CSO was provided a draft of the lease which referenced “Project Improvements” depicted in Exhibit B, However, neither Exhibit B nor the description was provided to the CSO. Would you ask Mr. Noss for a description of the construction, the premises and any other items that may be included in the project (e.g., whiteboards, computers, furniture, etc.)?
In addition to the project we discussed the 6/30/2016 Quarterly Financial Statements.
The CSO reviews the Financial Statements of the Academy on a quarterly basis, and we review the Annual Audit when it is submitted to the State.
During my review of the Financial Statements dated June 30, 2016 I noted a Prepaid Asset for $253,449.61, which is unusually large.
I have attached the statements provided to me for your review.
On Sept. 9, 2016 I contacted Angela Bush [NOTE: Full Spectrum Management accountant] to inquire about the Prepaid Asset and during the course of the our conversation she explained that the asset is made up of two things:
1. Prepaid Health Insurance (related to Payroll) for $43,660.27
2. Prepaid FSM Management Fee for $209,789.34
Ms. Bush explained that the Prepaid Management Fee was recorded because GTA over expended their budget and Mr. Noss decided to “forgive” the Management Fee for the last quarter of FY 2016 (Apr-June 2016). [According to an accountant I consulted, who is not associated with the Grand Traverse Academy, and after describing the issue without identifying the Grand Traverse Academy, I was advised that Noss could have resolved the budget imbalance by either forgiving the management fee and returning the money to the Academy or expensing the prepayment in the next fiscal year—but not both.]
I questioned Angela about the proper accounting treatment of the Prepaid and if was GAAP; she stated it was upon GTA’s auditor’s recommendation that the item be recorded as a Prepaid Asset.
I asked if she would confirm with the auditor (Mr. Sweeney) about the treatment of this item regarding the Annual Audit; she included me in an email to Mr. Sweeney, which I have not yet seen a response confirming this item.
In the event that the Prepaid Management Fee is displayed in GTA’s Annual Audit Report [NOTE: it did appear in the 2016 report], then the Academy Board needs to be aware that there should be no cash (or check) paid to FSM during the 1st Quarter of FY 2017 (Jul-Sep 2016) for FSM’s Management Fee.
There should be no payment because, in effect the Academy has already paid for the service in the last quarter of FY 2016 (Apr-June 2016), even though Mr. Noss forgave the fee.
In the Academy’s accounting records for the first quarter of FY 2017 the Prepaid Management Fee should be reduced and applied towards the Management Fee expense, however, there should not be a cash (or check) transaction in relation to FSM’s Management Fee.
It is incumbent upon the CSO to inform the Board that the forgiveness of any fees should be confirmed in writing, ideally, prior to the execution of the transaction, in order to protect the Academy from recourse (if any).
I did not see that the Management Contract between the Academy and FSM addressed forgiveness of fees.
Without reviewing Grand Traverse Academy's bank records to determine if Noss actually did return $209,789.34 to the school's bank account, it's impossible to determine what actually happened.
But this email appears to undermine Noss' “mistake” claim, as an accountant employed by Full Spectrum conveyed to the LSSU accountant the dual (and inherently contradictory) story four days before the Record-Eagle story hit the streets: I forgave it...before I prepaid it.
I have requested additional documents from Lake Superior State University in an attempt to nail down additional information, including details from auditor Patrick Sweeney at Crosskey Lanni.