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Thursday, July 17, 2014

To Catch A Liar, You Have To Ask The Right Questions

JULY 18 at 12:30pm

Despite a promise to clean the school house, things don’t appear to have changed much at Grand Traverse Academy. About one month before Steven Ingersoll’s impending indictment, Mark Noss, Ingersoll’s twenty-year business associate and a former board president, filed incorporation paperwork to form another education management firm, Full Spectrum Management, LLC.

The very same day, Grand Traverse Academy announced its switch to Noss’ company.

Even though Noss worked with Ingersoll for twenty years and headed the board that allowed Ingersoll’s company to collect advanced payments year after year (and a multi-million dollar overpayment in 2013), he claimed he had no knowledge of Ingersoll’s alleged wrongdoing. 

“With my deep understanding of GTA’s history and operations, and my thorough knowledge and alignment with the school’s model,” Noss explained in an April 28 email, “I am confident that Full Spectrum will be a great asset to Grand Traverse Academy.” 

And if that isn't chutzpah, then I don't know what is!

The classical definition of chutzpah comes from Leo Rosten, who put it this way: "that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan."

And chutzpah could be the reason the Grand Traverse Academy's Board continually refers to the missing millions as "prepaid expenses", somehow thinking that you'll never notice the misleading euphemism. (At least they didn't use "significant undercount"!)

For those of you just joining the circus, here's a recap:

On April 13, this blog broke the news that federally-indicted Steven Ingersoll had racked up a $2,338,980 "prepaid expense/expenditure balance" for management fee overpayments he made from the Grand Traverse Academy's bank accounts to his Smart Schools Management, Inc.

The story has never been publicly refuted by either the Academy board or Steven Ingersoll. The Academy's June 2013 audit report revealed that Smart Schools Management 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 called for Smart Schools to "work off the prepayment" by “partially reducing cash transfers for future management fees through June 2016”.

Notice that phrase: "an amount classified as a prepaid balance", and you'll see where the manufactured confusion stems from. While the 2013 audit explained that while Ingersoll's Smart Schools Management, Inc. regularly prepaid its own fees, it also "overpaid" itself by $2,338,980.

Below is an excerpt from the 2013 audit, showing that a management fee of $1,347,234 was prepaid to Ingersoll's Smart Schools. In addition, Ingersoll advanced himself an additional $2,338,980 during the year, and "withheld" repayment.

A "prepaid expense"  is listed within the current assets section of the balance sheet until the prepaid item is consumed. Once consumption has occurred, the prepaid expense is removed from the balance sheet and is instead reported in that period as an expense on the income statement. If the total ending balance in the prepaid expenses account is quite small, it may be aggregated with other assets and reported within an "other expenses" line item in the balance sheet.

Prepaid expenses are an accounting concept that refers to an asset that has been paid for, but the full benefit has not yet been received. The Academy supposedly makes a one-time payment for the asset, but receives the full value of it over time...except when it doesn't.

Calling the missing $2,338,980 a "prepaid expense" allows it to be recorded as an asset rather than an expense, obscuring what appears to be a staggering amount of financial misappropriation.


So here's a question for the Academy's Board: how did Steven Ingersoll manage to overpay himself nearly $2.5 million dollars in one year without anyone noticing?

And here's a follow-up: once it discovered the massive "prepaid expense" plunder, did the Board notify the Michigan Department of Education's Office of Audits, as required when there's a possibility of fiscal fraud? 

No? How about after Ingersoll was indicted?

Even before Ingersoll was indicted, the Board's specious "repayment plan" allowed him to continue receiving payment from the Academy--even with a multi-million dollar debt hanging over his head.

Let's move on to the "new management team".

In a July 3 Record-Eagle article, Board President Brad Habermehl was quoted musing rhetorically about how the Academy could be "moving forward with a new team when we have all the same high management employees running the show with Mark." 

Habermehl said he noticed after Ingersoll's indictment that correspondence about the school's finances came from Gretchen Ingersoll, Steven Ingersoll's daughter-in-law.

“After inquiring what the relationship was and what was going on, it came up she was still doing the books, and had been doing the books for Smart Schools,” said Habermehl, a Flint-based optometrist.

Habermehl said the GTA board hoped Gretchen Ingersoll would leave, as well as any other employees who "crossed over" from Smart Schools management.

Habermehl still hasn't figured out Full Spectrum Management is Smart Schools with another name?

How could it be possible, when Gretchen Ingersoll has worked for Smart Schools for nearly three years, that former Board Treasurer Habermehl would just be noticing where financial reports came from?


And what about that overlap--Gretchen Ingersoll was handling finances for Smart Schools and Full Spectrum...at the same time?  

Here's another question for the Board: have you requested a complete list of Full Spectrum employees, along with their titles and job descriptions?

If not, when will you do that?

And, finally, if the Board insists that "GTA prepaid Smart Schools its management fee, and is still owed $1.6 million from the company", ask them if they're concerned.

The last person who said she "wasn't concerned" was just sent packing...with what could be a sizable severance package.


If you get a chance to ask a question, see if you get an honest answer to this one: how many fingers am I holding up?

And hold up at least two fingers.

As the Grand Traverse Academy shows, it often seems as though charters schools are great assets to their managers...not the other way around.

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