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Saturday, September 5, 2015

BACK TO SCHOOL 101: The Grand Traverse Academy's Steven Ingersoll Fraud Scandal — Part 2

Since I embarked on my groundbreaking 18-month examination Steven Ingersoll’s financial activity at the Grand Traverse Academy, some of the players involved have worked behind-the-scenes to discredit my work, including the threat of a defamation suit, revealing my identity and home address online, and hand-delivering a handwritten threat letter to my former Northville home.

None of it stopped me.

In fact, it convinced me I was on the right path.

Here is the second installment of my three-part timeline series, uncovering calendar year 2014.

Early March 2014 Steven Ingersoll informs the Grand Traverse Academy Board of his impending federal fraud indictment.

Early March 2014 Mark Noss, in an undated and grammatically-challenged email (later quoted by the Detroit Free Press in a February 8, 2015 article) reacts to Ingersoll’s revelation.

In the email, Noss panics, stating “We now know it is likely Steve is going to jail. They are getting him for tax evasion for the pre-pay that has sat on GTA’s books they are now claiming is income.”

Noss continues, concerned that the “media exposé will devastating to the school”, and advises the Board to “be proactive and put a new management company in place before the media gets ahold of it”.

The Free Press article did not reveal recipients of Noss’ email, but it appears likely Academy Board members were included in the distribution.

March 19, 2014 Academy Board President Mark Noss oversees an early morning meeting where the Board votes unanimously to officially "withdraw from the management contract with Smart Schools Management, Inc."

Minutes later, the Board again votes unanimously, this time to accept the resignation of "Mark Noss as the President of the Board." Although Noss tendered his resignation during this meeting, the resignation was not effective immediately.

Academy records reveal Noss continued to serve in a dual role: as a member of the Board until its May 2014 meeting, nearly two months after signing a multi-year, multi-million dollar management contract.

The Noss resignation motion was immediately followed by the nomination of Brad Habermehl as President of the Board. Official March 19 meeting minutes reveal that only Habermehl abstained — Mark Noss was among the four Board members voting "aye".

Later that afternoon, Academy Board member Mark Noss and Board President Brad Habermehl officially sign a two-year contract for Noss and his newly-formed Full Spectrum Management, LLC to run the Grand Traverse Academy, one that could pay him up $4.0 million dollars over the contract’s term.

Noss continues in a dual role as an Academy board member and management company head until May 2014, including participating as both a board member and management head during the Academy’s April 2014 Board meeting.

March 20, 2014 Full Spectrum Management officially formed as a Michigan corporation.

April 7, 2014 Steven Ingersoll’s son, Josh, registers the domain name, www.fullspectrummgmt.com, with web hosting company ‘Go Daddy’ on behalf of Mark Noss.

April 9, 2014 Steven Ingersoll indicted.

April 10, 2014 Ingersoll’s federal indictment is unsealed.

April 11, 2014 Kaye Mentley tells the Traverse City Record-Eagle that Smart Schools handled the Academy’s financial and human resources duties, and had little to do with its curriculum. Quoted in the Record-Eagle, like a good soldier Mentley asserts that the Academy’s “audits indicate all our procedures and finances and appropriate and in order”.  (Mentley was later quoted in the paper stating she was "not concerned" about the $1.6 million owed by Ingersoll and Smart Schools. She went on to claim "at this time, the payment schedule that was arranged has been kept.")

It is later confirmed in federal court documents that in the months leading up to Ingersoll’s indictment, Mentley meets four times with federal investigators and testifies to the grand jury seated to hear the tax and wire fraud allegations against Ingersoll.

April 11, 2014 Academy Board President Brad Habermehl tells the Traverse City Record-Eagle that he’d just learned of the charges against Ingersoll that day, and claims that “declining MEAP scores” prompted the Board’s decision to sever ties with Smart Schools.

Although Habermehl attended the March 19, 2014 Board meeting where the unanimous decision was made to server ties with Ingersoll, and was aware of Ingersoll’s pending indictment since attending the Board’s May 20, 2013 special meeting, Habermehl has begun to spin the story away from Ingersoll.

Stating that “the Board felt the direction we were heading in was not the direction that brought success to the school”, Habermehl asserts that Smart Schools’ attention was diverted by “other projects” and the Board made the change to shift focus “on the structure that brought the school its notoriety”.

Notoriety? Strange word to use, considering the circumstances!

April 11, 2014 Kaye Mentley and Mark Noss respond to Habermehl’s bizarre alternate theory, and the resulting negative publicity, in an email to the Grand Traverse Academy staff. In the communique, Mentley and Noss state there “is inaccurate information in today’s article in the Record-Eagle, and we want to be sure you have the facts.”

Countering Habermehl’s misleading “declining MEAP scores” claim, Mentley and Noss reveal the Record-Eagle had been sent the Academy’s MEAP and ACT scores, and stress there was “no one person who started the school” and no one person “should get the credit for the school’s positive efforts.”

April 13, 2014 Miss Fortune exclusively breaks the news of Ingersoll’s $1.67 million dollar outstanding Grand Traverse Academy debt balance and his multi-year “prepaid expense” fee overpayment scheme.

April 22, 2014 The Academy Board’s public cover-up of Ingersoll’s massive financial misappropriation officially begins with its Superintendent, Kaye Mentley. In a lengthy question-and-answer “interview” posted on the Academy's website, Mentley asserts that Ingersoll’s charges “do not involve Grand Traverse Academy” and claims  “to our knowledge, Dr. Ingersoll’s legal issues are personal.” (So what happened to the “symbiotic relationship” between Ingersoll and the Grand Traverse Academy, Kaye?)

Mentley’s commentary glosses over the fact the indictment alleges that Ingersoll “sought to use part of the Chemical Bank construction loan proceeds that had been diverted to his personal Fifth-Third Bank account to reduce his indebtedness to the Grand Traverse Academy” from management fee advances Ingersoll had “made to himself from funds belonging to the Grand Traverse Academy.”

Attempting to finesse Ingersoll’s misappropriation of millions from the Grand Traverse Academy, Mentley’s “interview” is a story is built on half truths used to imply the rest of her story is true:

“We are not aware of any money illegally taken from the Academy, nor has our board ever approved a loan to Dr. Ingersoll or Smart Schools. Previous to the past year, the management fee was made as a pre-payment at the beginning of a new school year.  This practice was stopped during the past year when the school's new accountants indicated that it was inappropriate. The previous school accountant had continued this procedure on an annual basis. Because the budget was adjusted due to finances and the need to reduce the management fee in several years, the amounts paid in excess of the amended budget were then owed to GTA by Smart Schools. In view of the circumstances as of the beginning of GTA's last fiscal year, our board demanded repayment from Smart Schools for the balance due. GTA continues to pursue this repayment. No monies were ever advanced to Dr. Ingersoll personally. All management fees went to Smart Schools.”

Mentley does not acknowledge the board’s responsibility in allowing Ingersoll’s “prepaid expense” balance to balloon to over $3.5 million, instead throws the Academy’s “previous school accountant” under the school bus claiming the firm “had continued this procedure on an annual basis”.

The facts as stated in the Academy’s Dennis, Gartland & Neirgarth-produced 2013 audit appear to be less cloudy: according to that audit, the Academy’s contract with Ingersoll’s Smart Schools Management set “a ceiling for the management fee” but it did not include an “objective measure to calculate the fee annually”.

The report also revealed that Ingersoll had an unfettered ability to transfer funds between the Academy’s and his Smart Schools Management bank accounts. Smart Schools Management took “cash advances for their management fee each year on the budgeted figure “without futher Board action”.

The report claims that the net effect of Ingersoll’s ability to “prepay” his own fees and “withhold payment of overpaid fees enabled Smart Schools to “abuse their access to public funds”.

Addressing the Academy’s retention of Mark Noss and his newly-formed Full Spectrum Management as the school’s new education service provider, Mentley claims the board (which met with Ingersoll on May 20, 2013 to discuss his federal investigation and his $3.5 million dollar debt) “did not have the luxury of time to research a new company”.

April 26, 2014 The Academy Board’s public cover-up of Ingersoll’s massive financial misappropriation continues with Mark Noss.  

Although Noss personally called for and attended the May 20, 2013 meeting with the Board and attorney Margaret Hackett at Ingersoll’s request, he reacts to Miss Fortune’s allegations.  Echoing Doug Bishop’s claim to the Department of Education, Noss tells the Traverse City Record-Eagle “there was never an advancement or more money provided to Smart Schools that they weren't entitled to.”

Noss neglects a critical fact, however: although Ingersoll may have used preliminary approved budget figures to advance his management fees, he never returned the overpayments once the budgets were invariably adjusted downward—ultimately resulting in his $3.5 million dollar obligation to the Academy.

April 28, 2014 Board member and Full Spectrum Management head Mark Noss sends an email to the staff, asserting he “has a vision” — one that apparently didn't involve St. Cunegunda.

In his email, Noss makes a deliberately dishonest statement (OK, he makes a bunch of them, but I'm only focusing on one) about Ingersoll’s scheme — although he attended optometry school with Ingersoll, worked with him on charter school development for over twenty years, headed the Board that allowed Ingersoll’s company to collect advanced payments and even called the May 20, 2013 special board meeting where Ingersoll lobbied to have his $3.5 million dollar debt characterized as a “loan”, Noss claims he had no knowledge of Ingersoll’s alleged wrongdoing:

“Due to the controversy surrounding Steve Ingersoll in Bay City, the Board decided it was important to sever ties with Smart Schools Management to preserve the integrity of the Grand Traverse Academy. With my deep understanding of GTA’s history and operations, and my thorough understanding of the school model (which includes an emphasis on visual learning strategies), I am confident that Full Spectrum Management will be a great asset to Grand Traverse Academy.”

May 2, 2014 During Grand Traverse Academy May 2 Board meeting, Lake Superior State University charter office representative terms the growing Steven Ingersoll scandal as merely an "external distraction", leaving the impression that doting apple-polishing is part of the University's charter agreement.

May 4, 2014 Traverse City Record-Eagle reports the Grand Traverse Academy Board creates a new committee to “give members more financial involvement in the institution” following the revelation the school’s old management company was prepaid and still owes the school $1.6 million. Mark Noss insists the Board’s formation of a Finance Committee had nothing to do with Ingersoll’s misappropriation. (No, it didn't, it really didn't!)

Noss claims the move was adopted upon the recommendation of Lake Superior State University, which authorizes the school’s charter.

Noss asserts the move “has been a recommendation across the board to every charter school (Lake Superior State University) has been involved in.”

Noss continues, “We certainly embraced it because it makes a lot of sense.” Three days later, on May 7, 2014, Michigan Department of Education Superintendent of Public Instruction Michael Flanagan sends a letter to President of Lake Superior State listing a series of “corrective actions” including a “forensic audit to determine what, if any, school assets have been misused or misspent”. (The Grand Traverse Academy decides not to take Flanagan's advise, choosing instead to do nothing.)

May 7, 2014
Flanagan, Michigan Department of Education Superintendent of Public Instruction, sends letter regarding the Grand Traverse Academy’s missing funds to Lake Superior State University President Tony McLain. In the letter, Flanagan admits the Michigan Department of Education has “no statutory authority to recommend any corrective actions”, but acknowledges “funds were pre-paid to the previous management company and in doing so may place the public school academy in financial risk”.

June 27, 2014 Grand Traverse Academy Board calls a special meeting to discuss a resolution urging Mark Noss to "reconsider any employees, especially those in management, with close ties to Smart Schools." The resolution singled out Superintendent Kaye Mentley as a potential target of "appropriate action", while acknowledging "ambiguities" within the school and its former and current management companies.

The resolution did not delve into the "degree of separation" required to be "reconsidered", and it appears "ambiguity" was not enough to define a target.

According to publicly available documents describing the Smart Schools curriculum used at the Grand Traverse Academy, a major component is “Integrated Visual Learning”. As described on the Excel Institute’s website, Integrated Visual Learning is "an optometric process used to improve learning in students with vision problems". (The Excel Institute is a company founded by Steven Ingersoll, and run out of the same office space housing Mark Noss’s optometry practice in Traverse City.) 

Although “Integrated Visual Learning” is the foundation of much of Ingersoll’s “intellectual property”, U. S. Copyright Office records reveal Ingersoll and Mark Noss share the copyright for the original 1994 IVL process text titled “Integrated vision therapy” — not Smart Schools, Inc.

(An advanced search of official government copyright records returned no results for either Smart Schools, Inc. or Smart Schools Management, Inc.)

A review of Grand Traverse Academy financial statements indicates approximately $300,000 was paid annually to Ingersoll's Smart Schools Incorporated for "curriculum materials”.

In addition, the Smart Schools Management and Full Spectrum Management “education service provider” contracts with the Grand Traverse Academy are virtually identical, and each carries the same information in Article 7.02 relating to “curriculum and educational models”, indicating that Full Spectrum is likely still receiving $300,000 annually for “curriculum materials”.

(The shared Ingersoll/Noss copyright was not disclosed by Mark Noss, and I revealed the information exclusively on this blog December 4, 2014.)

July 2, 2014 Full Spectrum Management fires Grand Traverse Academy Superintendent Kaye Mentley.

Mentley, who reportedly held a financial interest in Smart Schools Management, Inc., issues a staff email the same day, getting a 12-hour PR advantage on Noss.

In his email, Noss states the Academy Board recommended ties with any previous Smart Schools Management staff be severed. Michigan's current charter school laws don't allow letting much sunshine in, so it's impossible to know the size of Mentley’s severance package.

July 3, 2014 Grand Traverse Academy Board President Brad Habermehl is quoted in the Traverse City Record-Eagle questioning 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. Habermehl said the GTA board hoped Gretchen Ingersoll would leave, as well as any other employees who "crossed over" from Smart Schools management.

(As I later revealed on my blog, Gretchen Ingersoll remains actively involved in the financial management of the Grand Traverse Academy through Mark Noss’ Full Spectrum Management.)

July 17, 2014  The Board cover up continues.

Grand Traverse Academy Board President Brad Habermehl reads the following statement in support of Steven Ingersoll during the Academy Board meeting:

“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 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 budgeted 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 disposition of the $1.6 million non-spendable asset.”

(The Board will later post two documents relating to its support for Ingersoll on its website in September 2014; both documents are later scrubbed.)

July 18, 2014 Traverse City Record-Eagle quotes Academy Board President Brad Habermehl post-meeting: "Do we sue Smart Schools or take it to court? What are our options? The $1.6 million has been haunting us for over a year now.”

The Board apparently came to no definitive conclusion during its meeting, except for the apparent revelation that Steven Ingersoll was actually a “philanthropist” and not a “thief”.

August 25, 2014
Grand Traverse Academy Board attorney Kerry Morgan tells the Traverse City Record-Eagle he's been looking into how and whether it's even possible the school can retrieve the outstanding $1.67 million from Smart Schools. “The fundamental question in whether there’s a legally enforceable obligation for that money to be paid.”

In response to my email asking for clarification, Morgan responds with the following: “GTA had a management contract with Smart Schools Management, not Ingersoll. Smart Schools Management (SSM) is a corporation, Ingersoll an individual. GTA’s recovery if any must arise from under the management contract. The fact that Ingersoll is the owner SSM does not make him personally liable on a contract between SSM and GTA. This is the nature of corporate liability.

Statements that ‘Ingersoll owes GTA x dollars’ are misleading. If the Ingersoll personally owes GTA any money it must arise from some legal obligation. An oral promise without valid consideration is simply not an enforceable legal obligation.”

September 13, 2014 Grand Traverse Academy Board posts two documents to school’s website: “History of Grand Traverse Academy”, and “Continuity At Grand Traverse Academy”. The “History” document claims Smart Schools Management “provided financial support to GTA by four methodologies; direct donation, guarantee of debt, rebate of contractually authorized and budgeted earnings and an agreement to augment GTA’s revenue by leasing some of GTA’s facilities.

However, assertions made in the “History” document regarding Ingersoll’s “financial support” have been refuted in DGN’s September 10, 2013 forensic audit report. The findings of the report were suppressed by the Academy and never publicly disclosed.

The two documents, which have disappeared from the Academy’s website, appear to be the most egregious examples of deliberately deceptive information produced during this scandal.

The DGN report stated, among other observations, that by “any objective measure, the fee arrangement lacks economic substance and accountability, provides an opportunity for abuse, and is structured to potentially become a benefit of a private party. It permits Smart Schools Management, Inc. to maximize their fee in good years and reduce their fee in poor years, leaving the impression that Smart Schools Management is forgoing payment for the benefit of GTA; when in actuality, Smart Schools Management is holding the Grand Traverse Academy’s funds in the process.”

September 12, 2014 Grand Traverse Academy Board attorney Kerry Morgan officially announces the charter school’s decision to wait until after Steven Ingersoll’s federal criminal case is resolved before they take action against Ingersoll to recover $1.67 million dollars owed from Ingersoll’s Smart Schools Management. Morgan is quoted in the Traverse City Record-Eagle: "Its recovery is uncertain, but it's something we are going to consider pursuing depending on the outcome of his legal situation. It's driven by pragmatic concerns," said Kerry Morgan, an attorney who spoke on the board's behalf. "If you're sitting in federal lock-up, it's a little different. And the government seizes your assets ... It's kind of a, why are we doing this?"

(The Grand Traverse Academy’s 2014 financial audit, released in later October 2014, reveals the Board’s decision to “write off” $1.67 million owed to the school by Ingersoll’s Smart Schools Management as a “bad debt”. To date, no efforts have been made to collect the money.)

September 17, 2014 Interlochen Public Radio airs story on Grand Traverse Academy Board controversy, and interviews Mark Noss. In 2013, the story stated that the school’s audit noted that Smart Schools was in the habit of advancing payment to itself for management services. The audit called this a “prepaid expense,” suggesting that the school had paid in advance for services it would receive later.

Mark Noss didn’t like that term, calling it a “terrible description of what that money is.” (The interviewer neglected to follow up and ask Noss how he would have described the money.)

Claiming it was simply a "common accounting practice", Noss said it was because Smart Schools Management 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.

“There were times when the resources were just not there,” explained 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.”

However, in early March 2014, right before his takeover of the Academy, Noss was singing a different tune. In a grammatically-challenged email to his fellow Board members, the Detroit Free Press later revealed Noss stated “We now know it is likely Steve is going to jail. They are getting him for tax evasion for the pre-pay that has sat on GTA’s books they are now claiming is income.”

Noss continued in the email, concerned that the “media exposé will devastating to the school”, and advises the Board to “be proactive and put a new management company in place before the media gets ahold of it”.

However, referring to Ingersoll’s massive multi-million dollar fee overpayment scheme, Noss tells the IPR interviewer, “Everyone said it was fine. It’s common accounting practice.”

November 6, 2014 Grand Traverse Academy announces two-year deficit reduction plan to address a $365,000 fund deficit.

December 27, 2014 Grand Traverse Academy Board President Brad Habermehl tells the Traverse City Record-Eagle that the Ingersoll “ordeal” has made the school “stronger”, and that he’s not “ashamed” of the financial hit inflicted by Steven Ingersoll.

“Certainly we’ve had some struggles, we’ve had some whitewater and it’s certainly made us stronger,” Habermehl said.

The publicly funded charter school on Hammond Road is now in deficit because school officials had to write off $1.6 million that Habermehl said Ingersoll promised to the school. The school’s 2013 auditors labeled the amount “prepaid,” a tag that Habermehl calls a misnomer.

“It makes it sound like (Ingersoll’s company) Smart Schools was paid funds they hadn’t earned yet. That wasn’t the case,” Habermehl said. “There was nothing that happened with the finances that we were ashamed of or discredits the school in any way.”


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