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Saturday, April 7, 2018

FIGURES LIE...AND LIARS FIGURE: Bay City Academy's Preliminary Michigan Department of Treasury Report Revealed; Bay City Academy Determined To Have A “History of supplying Department with DEP information that is inaccurate or inconsistent with actual revenues and expenditures at year end”

“The District has passed budgets in recent years that are inaccurate and inconsistent when viewed from year end. Furthermore, budgets posted on their website are not consistent with numbers pulled from the Financial Information Database within the Center for Education Information and Performance. 

Using information from their posted budgets at baycityacademy.com, in FY 16, the district adopted a budget that endeavored to cut $166,301 from a deficit of $1,333,730. 

Their FY17 budget shows they came up $71,971 short. In FY 17, the Board passed a budget that aimed to cut $25,721 from the new deficit of $1,239,400. 

They instead lost $57,081 putting their posted fund balance as of June 30th, 2017 at $1,239,400. The posted budget for 2018 hopes to cut $19,346. 

It should be noted that none of the numbers listed above match audited numbers posted in the Financial Information Database and the Center for Education and Performance Information.”
March 30, 2018
Preliminary Review Report - Bay City Academy
State of Michigan Department of Treasury memo

On March 30, 2018, the Michigan Department of Treasury issued a Final Preliminary Review Report of the Bay City Academy. Under supervision of the Treasury since June 2017, the charter school founded by convicted felon Steven Ingersoll is required to submit for Treasury review an Enhanced Deficit Elimination plan.  

According to the report, among the findings indicative of “financial stress” are: an existing deficit of greater than 15% of general fund revenues; a history of spending outside the appropriations established by the local school board in violation of Uniform Budgeting and Accounting Act (UBAA); significant audit findings and/or material weaknesses identified; and a history of supplying the Treasury with DEP information that is inaccurate or inconsistent with actual revenues and expenditures at year end.

In addition, the report states that the Bay City Academy has “experienced difficulty in paying their State Aid Notes and a bus note according to the original terms of the agreements.” 

Noting the Bay City Academy has experienced declining enrollment for the last four years, the Treasury also called out the Academy's rosy future student population projections showing an increase in enrollment, which contradict a significant declining enrollment trend, and a bullshit-laden January 29, 2018 press release (see below). 
In truth, the Bay City Academy (Bay City and Mancelona locations) welcomed its smallest student body this school year, with enrollment down nearly 42% from its peak in 2014. Attendance at the Academy's Mancelona's campus, the North Central Academy, is down 34% from its peak in 2016, sinking to 125 students in the Spring 2018 count from 191.


The Treasury initiated its Preliminary Review of the finances of Bay City Academy on March 9, 2018 to determine whether or not the school district exhibited probable financial stress. 

Pursuant to 2015 PA 110, section 4 (2) (b) (MCL §141.1544), the District is statutorily mandated to undergo a preliminary review of its finances to determine the existence of probable financial stress. In part, this section provides that the Department, as the State Financial Authority, shall conduct a preliminary review of any school district that is subject to a Deficit Elimination Plan (DEP) that provides for the elimination of deficit over a period exceeding 5 years.

BACKGROUND 

As I revealed exclusively on this blog back on October 29, 2015, the Bay City Academy's FYE June 30, 2015 financial report showed the charter school had a significant operating deficit, resulting in what was euphemistically referred to as a “cash flow shortage”. 

As of June 30, 2015, the Academy's General Fund had a deficit balance of $1,374,477. (Total revenues for the year were just short of $4.0 million dollars.)

The charter school did not proactively report its deficit to the Michigan Department of Education as required by statute, and was notified in writing on November 6, 2015 by the Department that it had violated Section 102 of the State School Act. Representatives of the Bay City Academy, including Brian Lynch, met with MDE staff on February 19, 2016 to discuss the district's deficit fund balance, the first charter school brought to Lansing to explain how it went from the plus column to a $1.4 million deficit in one year.

The deficit was largely the result of the prior management company's misuse of Academy funds.

Smart Schools Management, owned and operated by convicted tax cheat Steven Ingersoll, engaged in a longtime practice of paying expenditures without a whiff of documentation, and 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.” As of June 30, 2015, the Academy's current liabilities exceeded its current assets by $1,374,477.

TREASURY REVIEW FINDINGS

Existing deficit: the Bay City Academy’s board-approved 2017-2018 budget reflects total general fund revenues of $3,018,359 for the 2017-2018 fiscal year. 

The Academy’s total projected fund balance for 2017-18 is -$1,220,054 indicating the deficit is 40.4% of the charter school’s total general fund revenues.

History of spending outside board-approved budget: the Bay City Academy board passed a balanced budget on June 20, 2014 for the 2015 fiscal year calling for a savings of $19,786 on budgeted revenue of $4,710,500. 

They closed the year with a negative fund balance of -$1,359,479, receiving only $3,724,629 in revenue. 

For the 2016 fiscal year, the board was able to close the year at an audited surplus of $204,019 leaving a negative fund balance of -$1,155,458. 

For 2017, a budget calling for a savings of $25,721 ended up in the hole at -$99,246, increasing the negative general fund balance to -$1,254,704. 

The 2018 budget called for a savings of $19,346 with an outstanding general fund deficit of -$1,254,704. 

An amendment was passed in November improving savings to $51,747, cutting the projected deficit to -$1,202,949

Significant audit findings/material weakness: the Bay City Academy received four audit findings for the fiscal year ending June 30, 2017, including relying on external auditor to compile financial information; not maintaining appropriate control over expenditures; deficit fund balance and inability to adopt a budget that accurately predicts overall deficit. 

History of supplying Treasury with Deficit Elimination Plan information that is inaccurate or inconsistent with actual revenues and expenditures at year-end: using information from posted budgets at baycityacademy.com, in FY 16, the Bay City Academy adopted a budget that endeavored to cut $166,301 from a deficit of $1,333,730. 

However, their FY17 budget shows they came up $71,971 short. 

In FY 17, the Board passed a budget that aimed to cut $25,721 from the new deficit of $1,239,400. They instead lost $57,081, erroneously posting a misleading fund balance as of June 30th, 2017 at $1,239,400. 

The posted budget for 2018 hopes to cut $51,747. 

There is a recurring finding in the audits that speaks to this issue. Audit Finding 2017-002 (a repeat finding of 2016-002) states, “The Academy did not appropriately monitor actual expenditures and budget amounts so that disbursements were within the approved budget”.

OTHER FINDINGS 

Citing the Bay City Academy's chronic difficulty in paying short-term debt and relying instead on refinancing, including a $1.5 million State Aid Note loan that has been renegotiated several times and a bus note that was originally scheduled for payoff in October 2016, the Treasury memo notes that short term debt “should be paid in full within a calendar year”.

Defending the Academy's practice of serial refinancing in a March 29 email to Treasury official Michael Wrobel, Mitten Educational Management's Michael Randel (the CPA partner of Brian Lynch) insists “we do acquire a new loan from the same institution to pay off the old loan in full. Never missing a payment and we have been paying down the debt.”

In addition to sharing a $300,000+ annual management fee, Lynch also collects an $82,050 pay package as the Bay City Academy's Superintendent. 

Comments from the Bay City Academy were due to the Treasury by Tuesday, April 3.

More on this as further updates are made public by the Michigan Department of Treasury.
 

4 comments:

  1. It never ends with them, steal lie and cheat the State of Michigan, so they can line their pockets. When are they going to be shut down? It is way past time.

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  2. Thank you again, Miss Fortune, for informing the public of what should be news on TV, MLive and the print Bay City Times. The honest public applauds your diligence and research.

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  3. How true your caption is: "Figures lie and liars figure." But that's what happens when you're dealing with crooks. Thank you for exposing all this, Miss Fortune.

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  4. MDE would not hesitate they would have closed a public school down a long long time ago like they did Saginaw this must lead back to the Devos's, what I don't understand is what the treasury Department is saying? They are saying a lot and doing nothing as far as I see and it's clear wildfire is in on it. I wonder who Brian Lynch is cleaning lady is Miss Ingersoll or Miss Bradley

    ReplyDelete