Total Pageviews

Saturday, May 7, 2016

KITING FOR FUN AND PROFIT: Steven Ingersoll Explains, Under Oath, How He & The Grand Traverse Academy Board Accumulated A Multi-Million Dollar Management Fee Overpayment Balance. (Hint: It Wasn't A "Rebate" Or A "Donation".)

If Steven Ingersoll paid back each previous year's Grand Traverse Academy receivable  at the beginning of the following fiscal year, then how did grow to an estimated $3.5 million dollars?

Simple: at the beginning of each fiscal year, after Ingersoll had paid the previous year's receivable balance using Michigan state aid money provided to the Grand Traverse Academy, he created a new and larger, receivable balance.


According to his December 9, 2015 sentencing hearing testimony, the Grand Traverse Academy board did not require Ingersoll to pay his balance down to zero, instead allowing it to balloon to over $3.5 million dollars by 2012. The following excerpt picks up during Ingersoll's direct examination that day by Assistant United States Attorney, Janet Parker:

Q. Doesn't the rebate affect expenditures by lowering the management fee? 

A. Yeah. 

Q. And also -- there was another component to the rebate, wasn't there? It was not just a management fee, but it was also a lease component? 

A. Yeah, that's on the revenue side, and the management fee on the expense side, that's right. 

Q. Right. And the -- why don't I put it this way: Can you explain to the Court how the amount of the lease was determined. 

A. Well, as -- no, I can't explain that, other than the sum of the reduced management fee plus the gross amount of the lease. 

The lease was written to be determined -- I think the language in it said a retrospective determination at year-end. 

Of course, the reason it was written that way was to use it as a mechanism by which -- to influence that rebate position, so -- so I can't give you an exact -- I can't give you a definition as to how those -- the number was arrived at. 

It was well -- I can't say.

Q. Well, who arrived at that number?

A. I did pretty much. 

Q. All right. So you arrived at a number that was based on what? 

A. The primary driver of that was the amount of money that was required, amount of support, I should say, that was required to balance GTA's books for that fiscal year. 

Q. Okay. 

A. And that had to be split between the vehicle for revenue enhancement versus vehicle -- plus vehicle for expenditure reduction, management fee. 

Q. Why would you split it between those two things? 

A. I don't know. 

Q. It was your decision, wasn't it? 

A. Are you referring to the creation of this methodology or a specific year, for example? 

Q. I'm referring to why would you opt as a methodology to, in order to make things not show a deficit, attribute part of the adjustment in your management fees and use the lease to the other side of the equation to complete the necessary adjustment? 

A. I can't tell you why that is. Both of those method -- 

Q. Was -- I'm sorry. If you can't tell me why -- 

A. I guess I can say the why for both of those was the same, to create a methodology to deliver the support that the Academy needed to balance its books. 

Q. Okay. And at the start of the year, was there a lease amount in the budget? 

A. Most times. 

Q. At the end of the year, would there be any relationship between that budgeted amount and what was in the final budget, or would that figure be based on the need to make the books look balanced? 

A. It was -- the amounts were based on what it would take to balance the books at the end of the year – 

Q. All right. 

A. -- and the beginning was an estimated circumstance. 

Q. All right. And the bottom line is you never paid that amount? 

A. Well, that's not quite true. 

Q. Well, did you actually pay the lease amount that is included in the final budget to GTA? 

A. Yes. 

Q. Or was that part of the receivable? 

A. It was part of the receivable. 

Q. Okay. And when you actually paid it, did you actually transfer that amount to GTA? 

A. Yes. 

THE COURT: Now, you can answer the same question with respect to the management fee. They're two different questions. 

MS. PARKER: Right. 

Q. Did you actually pay the management fee? 

A. Yes. 

Q. Explain when and how you actually paid that management fee. 

A. In the first two months -- within the first two months of the prospective fiscal year, the rebate total in the preceding fiscal year was paid by actual transfer of monies from Smart Schools to GTA. 

Q. All right. 

A. Simultaneously, thereabouts, sums of money from GTA were trans -- that were budget authorized in the previous year were transferred to SSM to supply the money to do so. 

Q. In other words, you used the next year's money to pay the last year? 

A. That is correct. 

Q. And that is why the receivable kept growing? 

A. No. 

Q. Then why did the receivable -- the receivable is a combination of the management fee and the lease, correct? 

A. No. 

THE COURT: Can I stop for just a moment. 

MS. PARKER: Sure. 

THE COURT: This is not the time to be curt with the prosecutor. You know these answers. 


THE COURT: This is the time to explain it to her as well as you can. 

THE WITNESS: I'll do that. 

So if -- if you'd like me to reframe your questions, I'll do that. 

Here's what happened. 

When the rebate was determined, what it should be, it was booked as a receivable, and it was -- had two components; management fee and lease, and the sum of those two totaled the amount of the rebate. At the same time -- 

Q. All right. How is that different from what I asked you before and you said no? 

A. Well, I don't know -- well, that is quite different. That's -- 

Q. Please inform me. 

A. I'm trying to. 

When you said that -- do you want me to -- never mind. 

I'll just carry on with what I'm saying and then I think it'll be clear. 

So at the end of the fiscal year, whatever the need was, it was accomplished by those two elements that became in their sum the total of the receivable. 

At the same board meeting that the finalization of the lease amount and the reduction of the management fee occurred, the authorization for revenues to be delivered to Smart Schools for the prospective fiscal year was also established. And if you tally up the line items that Smart Schools was authorized to receive, it's about six -- 6.6 or thereabouts each year. 

Out of that money, a good share of it anyway, would be drawn early in the fiscal year, that is in the first two months to help Smart Schools be able to service the created rebate. 

So in a sense, the -- your point was, so you used GTA's money to pay the rebate. Well, that's not technically correct. 

I used SSM's money that was authorized by GTA to repay the rebate, so that's the mechanism that we were operating under each of those years. 

Q. And this is -- you recognize that this was something that had to be done in the first 60 days of the new fiscal year under Government accounting principles? 

A. That's what I understood, yes. 

Q. So you have some familiarity with Government accounting principles? 

A. I do. 

Q. Are you familiar with the term kiting? 

A. I know what that means. 

Q. All right. What is your understanding of what that means? 

A. A bank account that is out of money gets filled with money by drawing money from another bank account that is out of money, that then creates a, you know, a negative balance over here. 

Q. Right. And then you make a draw against the first bank account to replenish the second bank account, back and forth, correct? 

A. I don't think this is quite the same, if that's what you're implying. 

Q. Well, I'm not asking your opinion on that. What I'm asking is why does the rebate continue to grow if you're paying it in full? 

A. It was paid in full. 

The rebate is more a function of the operational activity through the year relative to the funding sources, that is the expenditures through the year versus -- revenues versus expenditures through the year. That's what determined the change in the rebate amount. 

Q. But the rebate continues to grow because you've paid this year's money into last year's and now have to take more to keep the process going? 

A. Well, the lion's share of the balance of that rebate occurred '07, '08 and '09 if you look at the -- 

Q. When -- I'm not asking you that. 

A. Okay. 

Q. It continued to grow. It grew -- by the time of the spring of 2012 it was $3.5 million? 

A. Yes. 

Q. Yes. It was smaller in the preceding year and even smaller in the year before that? 

A. That is true. 

Q. All right. So why? 

A. The revenues were insufficient to cover the expenses and the amount of rebate -- the amount of infusion against the rebate that Smart Schools was able to put in -- the rebate grew by the fact that -- that the -- whenever the management fee was shrunken from 12 percent, that added to the rebate amount so every year – 

Q. When, in your estimation, were you obligated to pay off that rebate to zero? 

A. Say the question again, please. 

Q. When were you obligated to pay that rebated sum to make it zero? 

A. I don't think there was a definite date for that. I don't think that that rebate needed to be zero at any particular date. Well, at least until the separation of the -- I mean, the agreement was that at the end -- that became a conundrum of course because the plan was for me to -- once GTA was able to pay 12 percent, essentially – 

Q. All right. Okay. I'm not sure that you're answering my question anymore. 

A. Okay. All right. 

Q. If you didn't feel that you were obligated to pay that to a zero by any particular date, what about that general accounting principle -- or government accounting principle 60 days? 

A. I was obligated to pay that within a 60-day period. 

Q. But then you create a new one? 

A. Yeah, that's right. 

Q. Just keep creating a new and larger one each year. 

A. (Nodding head.) 

TOMORROW: The complete story of a June 8, 2007 promissory note approving a $450,000 loan made by Ingersoll's Smart Schools Management to the Grand Traverse Academy.

You'll be shocked when you find out which board President approved this illegal agreement...and no, it wasn't Mark Noss!


  1. Wow...What a shell game with taxpayer money...gives me a headache just reading Ingersoll's responses to the prosecutor's questions. And don't you just picture an allegedly educated person saying "Yeah, that's right." Must be the IVL English in him.

    1. "Yeah," it was "I and Steve." IVL English and IVL Math (I Value Loot).

  2. I read this testimony out loud to my retired accountant mother and after she was able to breathe again from all the laughing suggested this testimony would be useful in an accounting 101 class.

  3. Isn't it interesting that Mr. Ingersoll was so curt with the prosecutor that the Judge had to remind him of his manners (or lack thereof) and tell him "You know the answers (to these questions)."