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Monday, October 13, 2014

IS IT CREATIVE ACCOUNTING...Or Simply More 'Fudge' Than Mackinac Island? Miss Fortune Detects The Deception Behind The Campaign To Convince You That $1.6 Million Dollars Isn't Really Missing!


All drama is about lies. All drama is about something that’s hidden. A drama starts because a situation becomes imbalanced by a lie. The lie may be something we tell each other or something we think about ourselves, but the lie imbalances a situation. If you’re cheating on your wife the repression of that puts things out of balance; or if you’re someone you think you’re not, and you think you should be further ahead in your job, that neurotic vision takes over your life and you’re plagued by it until you’re cleansed. At the end of a play the lie is revealed. The better the play the more surprising and inevitable the lie is. Aristotle told us this.” 

It's not every day I begin a story with a quote from David Mamet, my favorite playwright—especially one about lies.

As readers of this blog know by now, I've been vocal about the significant conflict of interest and potential accounting fraud at the Grand Traverse Academy.

But with the release last week of the Academy's September 12 Board meeting minutes, it appears that even a bankrupt CPA could see right through attorney Kerry Morgan's dishonest assertion that Smart Schools Management's pattern of ending a fiscal year with a "prepaid expense" balance was merely a way to record federally-indicted Steven Ingersoll's "pledge" to contribute about "5 million to GTA over time."

Wait a minute! It looks like Morgan admitted the Academy committed accounting fraud!

Somebody thinks you're stupid.


The formal pivot away from acknowledging the $1.7 million owed to the Academy by Ingersoll's Smart Schools was the direct result of its 2013 fiscal year $2.38 million dollar fee "overpayment" began at the charter school's July 18 Board meeting.

Brad Habermehl, Flint-area resident and Board president, read this prepared statement:

If not for the efforts and intellectual contributions of Dr. Steven Ingersoll and Kaye Mentley and Smart Schools’ willingness to rebate its earnings, GTA would not likely exist today.

Over the years GTA needed substantial financial support and Smart Schools always supplied what the Academy needed.

Analysis of GTA’s audited financial statements and board minutes from June, 2004 through March, 2014 shows that Smart Schools gave GTA $3.3 million from its budgeted and contractually authorized earnings. Additionally, Smart Schools planned to rebate another $1.6 million from its future earnings which is classified on GTA’s books as a non-spendable asset.

Smart Schools founded and funded GTA from its origin. GTA flourished in large part because Smart Schools was willing to rebate its contract and budget authorized earnings during GTA’s lean years of infancy, expansion and State funding reductions. 

With Smart Schools no longer associated with GTA the board will now go into closed session to consider proper disposition of the $1.6 million non-spendable asset.

During that meeting, Habermehl offered no proof that backed up his assertionsbecause there really isn't any.

Even the Board's five-page follow up attempt"History of Grand Traverse Academy", published on September 14provided no financial reports that supported its assertions. 

Habermehl should have just asked, "Do you honestly think we wouldn't let a harmless white collar crime like this escape the wheels of justice?"

Somebody thinks you're stupid.


The standard framework of accounting principles, standards and procedures that companies use to compile their financial statements includes 'prepaid expenses'. Prepaid expenses and deferred charges appear on a company’s balance sheet as 'other assets'.

Both apply to a situation where a company pays in advance for a good or service. Generally accepted accounting principles (GAAP) dictate that expenses that are paid before they're due belong on the balance sheet. Whenever a company pays expenses in the current period that won't be matched with services until subsequent periods, the expense is a "prepaid expense" or "deferred charge".

Somebody thinks you're stupid.


As the 2001-2013 financial snapshot shows (left), the Grand Traverse Academy had a long history of ending its fiscal years with a "prepaid expense" balance.

Beginning in fiscal year 2005 (ending June 30), the Academy's annual audits began to show a pattern of ending each year with prepaid expense balances ranging from $25,882, and topping out in 2013 at $2.38 million. 

There was never a mention in any report that claimed the "prepaid expense" balance was really a "donation pledge" made by Steven Ingersoll's Smart Schools Management.

While the early audits may have been performed by a more compliant, less rigorous CPA firm, the Academy's 2013 audit drew much closer scrutiny of its "prepaid expense" balance by Traverse City public accounting firm Dennis, Gartland & Niergarth.

In the auditor’s report, Smart Schools Management actually 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”.

You may want to read that again, especially the part that called for Smart Schools to "work off the prepayment", before you read the comments attributed to attorney Kerry Morgan in the Academy's official September 12 Board meeting minutes.

Here they are:

First, Mr. Morgan addressed the past relationship with Smart Schools Management (SSM). He observed that SSM had a written contract with Grand Traverse Academy (GTA). The parties agreed that SSM would contribute about 5 million to GTA over time. GTA carried this pledge upon its books as a “prepaid” amount. Annual certified public audits found this characterization acceptable since the continued relationship with Dr. Ingersoll and SSM warranted the expectation of GTA’s eventual receipt of these funds. 

Due to the federal indictment of Dr. Ingersoll, however, GTA terminated its contractual relationship with SSM in March of 2014, having received only about $3.4 million of that amount leaving $1.6 million not received by GTA. 

It is anticipated that the next audited statement of GTA will modify the accounting treatment of these funds, since receipt thereof was rendered uncertain by the abrupt termination of GTA’s management relationship with SSM.

So, did Morgan inadvertently make a false representation (insert your own euphemism for lying here) with absolutely no proof, or were his assertions correct?
Somebody thinks you're stupid.


The Academy's 2013 audit confirmed Smart Schools' years-long pattern of advancing payment to itself for management fees and other expenses, calling the resulting year-end balance a “prepaid expense”.

However, in an interview that aired last month on Interlochen Public Radio, Mark Noss said prepaid expense was a “terrible description of what that money is.” 

Noss is the former Board president who signed a two-year management contract while a board member, remaining on the board for weeks after and even making a motion to add an agenda item directly relating to his contract during the April 11 meeting! But this serious conflict-of-interest is only part of the continuing pattern of fraud, deception and financial monkey business by Noss and his Full Spectrum Management, LLC.

In the IPR interview, Noss continued unchallenged, swinging through his financial jungle and claiming "the reason Ingersoll’s company owed the charter school money was not because the school paid for services it never received."

What!? So why the "repayment plan" then, Mark? When is there ever a repayment for a pledged donation?

Noss, who is currently a business partner of Steven Ingersoll, goes on to explain that what looks like down is really up.

Utilizing the bogus "it's a donation pledge, not a debt" pivot, Noss claimed in the IPR interview that Smart Schools "would promise to refund some fees when money was tight for the academy, like if teachers offered to take a pay cut in the middle of the year to fill a budget gap."

Teachers, did you ever offer to take a pay cut, or is this just more blown smoke from a financial monkey's ass?

“There were times when the resources were just not there,” explains Noss. “So Smart Schools basically pledged or rebated that money back, saying at some point in time we will repay what we’re calling a prepaid expense.”  

It's hard to take this joker seriously, especially when he contradicts himself twice within the same sentence.

In mid-September, the Academy Board announced with a flourish that it had decided to wait until after Steven Ingersoll's federal trial to sue Smart Schools Management to recover the $1.67 million in taxpayer funds lost to this financial shell game, knowing that if Ingersoll is convicted the feds will seize his assets—making this whole ugly issue moot.

Or is it?


The Academy's attempt at "make it go away" PR looks like could work. There's been no follow-up interview with Mark Noss, even though I revealed on this blog that Noss was a board member when he signed his management contract

And it's clear that the Academy's Board conducted business outside its regular public meetings, considering that the Full Spectrum Management contract was signed on March 19—you can't just pull that rabbit out of your hat in minutes.

In its contorted Orwellian language (lies meant to convince you that Steven Ingersoll didn't run off with nearly $2.5 million right under their noses—and apparently with their complicity), the Academy Board really thinks you're stupid.

And now you need to show them you're not.

Every day, I get upwards of 1,000 page views on this blog, so I know many people are reading my coverage of this controversy.

Just think what might happen if ten of you called Michael Flanagan's office, and asked him the status of the forensic investigation into the Grand Traverse Academy.

And I know someone out there knows an influential person (or three) who can help get this story the traction and attention it deserves.

It does no one any good if you just sit, read, and titter vicariously behind your hands.

Do something...because you're not stupid.


  1. This school year there are 1210 students as of count day, which means that there are well over 1,210 parents who choose to send their children to this school. And yet, it is easy to count ON ONE HAND the number of parents who show up to board meetings. I don't know what will move these parents to action if $1.6 million can't do it. GTA would benefit from a library or a cafeteria or even (and quite needed) new carpeting, but the parents don't seem to connect the dots. It's disgraceful.

  2. The shell games continue. There is work being done on the old Brooks home on center. He petitioned the neighborhood to open a bed and breakfast. Where he is getting the money to work on this? I can speculate. How about the asbestos removal complaints filed with the state on the new Farragut school he opened? Where do those stand? How about the kids who have been attending in buildings where it was illegally moved?

  3. I am one of the parents counted on the above commenter's hand who has attended board meetings. I spoke out to the Board members at their meetings and asked questions of them. Their response was "Thank you for coming."

    My multiple complaints to the LSSU overseer, my state senator, my state representative, the Michigan Department of Education and the Michigan Attorney General's office have been ignored. Many of these offices have not bothered to return phone calls or written correspondence.

    The only way we saw to get anyone's attention was to transfer our children out of the school - which we did. The repercussions are when we see members of the "GTA family" at community events, we are shunned. I harbor no hard feelings against the teachers or staff. They are outstanding.

    I agree with Miss Fortune and others who ask why so few have spoken out. Making the choice to ignore what has happened and not act is disgraceful. It is inaction that allows Ingersoll, Noss and others to proceed with business as usual.

    Shame on us.