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Wednesday, April 30, 2014

"TO THE BEST OF MY ABILITY...SORT OF" Miss Fortune Miss Fortune Examines Grand Traverse Academy Board's Financial Accountability & Stewardship

According to the Michigan Department of Education, charter school board members are public officials that have sworn a constitutional oath of office here in Michigan. Each board member undergoes a selection and appointment process established by the charter school’s authorizer before being named by the authorizer’s governing board.

But the actions taken by the boardand especially those not takenduring the years leading up to Steven J. Ingersoll's federal fraud indictment appear to be merely a rubber stamp of the status quo. 

In addition, the board appeared to abdicate its oversight role, serving instead as Smart Schools Management, Inc.'s alter ego while its owner misappropriated $2.3 million taxpayer dollars. Ingersoll's outsized influence in the day-to-day operation of the Grand Traverse Academy helped create a board with members whose interests aligned with the education service provider, and not the community of Michigan taxpayers.


This is a critical time for charter schools in Michigan, as they are increasingly held by some of our politicians as a solution for failing public schools.But the entire model of using education management companies may be flawed, causing inherent conflicts between the goals of public education and for-profit business. 

Without a copy of the management agreement, unavailable even after I submitted a Freedom of Information Act request to the Michigan Department of Education (they did not have a copy), it’s impossible to determine what duties the Grand Traverse Academy off-loaded to Ingersoll’s Smart Schools Management, Inc., but it appears the following could be included:

-Preparation of the annual budget
-Maintenance and retention of all financial records
-Recommendation and enforcement of rules, regulations, and   procedures
-Solicitation and receipt of grants and donations
-Selection, evaluation, assignment, discipline, and supervision of the school’s personnel
-Determination of the school’s staffing levels
-Selection and employment of the school’s Superintendent/Principal
-Providing the school with
curriculum/teaching methods based on Ingersoll’s Integrated Visual Learning model

In the first of an ongoing series, this report examines the unsound financial practices that led to what the Grand Traverse Academy's 2013 audit euphemistically termed a "prepaid expense balance overcharge" of $2,338,980. 

Others may call it a "misappropriation of public funds".


In July 2009, the Academy entered into a seven year agreement with Smart Schools Management, renewing an association that begain when the Academy opened in 2000. It's unclear if the management agreement terms of renewal were automatic on an annual basis and did not require meeting any specific performance measures or other obligations.

Total payments to Smart Schools for the year ending June 30, 2013 reached $6,946,462 and refunds received totaled $1,897, 805.

Included among the grand total were these three classifications:

Management: $1,347,234
Leased employees: $4,680,661
Education programs/consulting: $300,000

The Academy ‘s Board of Directors passed a resolution on May 12, 2012 establishing a management fee cap of 12 percent of revenue, and the contract with Smart Schools Management stated that the management fee should “not exceed $2,000,000 in any fiscal year.”

However, the Grand Traverse Academy 2013 fiscal year audit revealed that the Smart Schools management fee exceeded that 12 percent cap by nearly $300,000.

According to information revealed in the audit, that while the Academy’s contract with Smart Schools set a ceiling for the management fee, it lacked an objective measure to calculate that fee annually. 

Even more importantly, the audit revealed that the Academy was carrying a whopping “prepaid expense/expenditure balance” of $2,338,980 for payments made over the past few years to Ingersoll's Smart Schools Management, Inc.

In the auditor’s report, Smart Schools 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 agreed to by the board called for Smart Schools to work off the prepayment by “partially reducing cash transfers for future management fees through June 2016”.

Let's stop right there.

In addition to receiving “prepaid management fees”, Smart Schools also had the ability to “transfer funds between the Academy’s and Smart Schools Management, Inc.’s bank accounts” without prior approval. The auditor’s report bluntly informed the Grand Traverse Academy that Smart Schools' ability to “prepay their fee and withhold payment of overpaid fees” enabled the company to “abuse their access to public funds”. 

By allowing Ingersoll to "advance monies" to his private entity, Smart Schools Management, Inc., the Grand Traverse Academy was “out of compliance” with Michigan’s Revised School code.

In my opinion, the Grand Traverse Academy board, headed by Ingersoll associate Mark Noss, appears to have neglected to take the action necessary to protect the school—and Michigan’s taxpayers—from a financially ruinous agreement with the management company...entered into by its board members.

Conflicts of interest and board oversight collide when improperly close relationships create opportunities for self-dealing among board members and the management company.

Noss, the former board chairman, who recently formed a management company that was awarded a contract by the Grand Traverse Academy, has close ties to the former company’s leadership

Brian Lynch, Noss's son-in-law, is currently employed by Smart Schools Management, Inc., serving as Superintendent at the Bay City Academy—a school founded and funded by Steven Ingersoll. In addition, Ingersoll supplies Lynch with housing during his stay in Bay City at a bed-and-breakfast establishment he owns.

As the Ingersoll scandal grows, the Grand Traverse Academy comes under increasing scrutiny from the community questioning how our public money is spent and whether Smart Schools exerted too much control over the school.

For the Grand Traverse Academy board to meet its requirements of accountability and financial stewardship that their use of public funds requires, the relationship between the board and its management company must radically change. 

How is what Steve Ingersoll did—transferring over $2.3 million dollars he wasn't legally entitled to and not being made to return the entire sumany different from the embezzler who laundered money by moving it between various accounts and failed to repay any of it?

Here's how—the guy who did that (Jeremy Landau, a former California charter school board member) has been charged with 13 felony counts for stealing $750,000 in the largest charter school theft in California history. 

That dude was a piker.

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