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Friday, May 2, 2014

BLUE MY MIND: The Budget In Black & White (And A 235% Fee Increase!)

A year-over-year analysis of the Grand Traverse Academy's 2009-2013 financial audit reports reveals the management fee paid to Steven J. Ingersoll's Smart Schools Management, Inc, increased significantly after the Academy entered into a new, seven-year agreement in 2009.

That is, if you consider a 235% increase significant!

The findings, based on information obtained by Miss Fortune from the Michigan Department of Education under the Freedom of Information Act, reveals that although total revenue increased by 8% in 2011 over the previous year's, the management fee paid to Ingersoll increased by a whopping 235%. 

Financial audit reports show the fee went from $347,412 in the year ending June, 2010 to $1,098,537 in the year ending June 2011. Although the management agreement between the Academy and Smart Schools has not been made public, the audit reports seem to indicate that there was no substantial increase in the contractual responsibilities.

In July 2009, the Academy entered into a seven year agreement with Smart Schools Management, Inc. Under the terms of the agreement, Smart Schools provided a variety of services, including financial management, educational programs and consulting, as well as teacher training.

The Academy was obligated to pay Smart Schools a fee, not to exceed $2,000,000 through the termination of the contract depending on the level of state funding. 

A close examination of the "Prepaid Expense" line item showed a jump in 2011 over the previous year's total, but the amount had dropped to under $70,000 by June 2012.

But by the June 2013 report, it had soared to over $2.3 million dollars!

The 2013 report stated that while the Academy board had passed a resolution on May 4, 2012 maintaining a management fee cap at 12% of revenue (or $1,053,000 for the year ending June 2013), the 2013 management fee exceeded that amount by approximately $294,000, coming in at $1,347,234. 

As I reported on this blog on April 13, the 2013 audit report stated that while the Academy’s contract with Smart Schools Management set a ceiling for the management fee, it lacked an "objective measure to calculate that fee annually".

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 Traverse City certified public accounting firm Dennis, Gartland & Niergarth raised several troubling internal financial control and compliance issues in its 2013 audit report to the Academy.

Among its major concerns were the advance by the Academy of prepaid fees to Smart Schools Management, the possible “abuse” of Smart Schools Management in their “access to public funds” and ability to withhold repayment.

So there it is...in black & white.

Yeah, it blew my mind, too!

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