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Friday, December 9, 2016

FROM RUBBER RATS TO AN EPA SWAT TEAM: An Inconvenient Truth Meets A Convenient Explanation

As I revealed in a story yesterday, a comment I submitted in response to a story about Betsy DeVos elicited a retort from Steven Ingersoll. After living with overt threats since June 29, 2014, you'd think nothing would surprise me.

But you'd be wrong. 

What follows is the comment that cheesed off Ingersoll, prompting his response

Plan 9 From Outer Space December 7, 2016 at 8:41 am 

While former charter school management company head Steven Ingersoll’s years-long excursion through federal court appears to be drawing to a close, it’s important to note Ingersoll’s shocking diversion of an estimated 5 million dollars from the Grand Traverse Academy has yet to be investigated. 

And while it’s a complex story, here’s why you should care: it’s your money. 

I bring you “Ingersoll 101”, the backstory of this financial scandal. 

At the start of each fiscal year, (beginning July 1, 2007 and continuing for six years through the fiscal year ending June 30, 2013), Grand Traverse Academy (GTA) manager Steven Ingersoll withdrew his entire annual Smart Schools Management, Inc. fee from the Traverse City, Michigan charter school’s bank account before it had been earned — and before he was contractually entitled to receive it. 

Although ostensibly based on a percentage of the GTA board’s approved preliminary budget figures, Ingersoll’s management fee was necessarily “adjusted downward” after actual budgets were calculated at the end of each year. 

Ingersoll booked the overpayment on the GTA’s balance sheet as either “accounts receivable” or a “prepaid expense”, claiming them as “assets”, concealing the school’s shaky financial condition. 

The scheme was apparently supported by then board president Mark Noss, who explained it away in a September 17, 2014 Interlochen Public Radio interview: “There were times when the resources were just not there. 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, Ingersoll never really repaid the difference between the amount he’d advanced himself (“what we’re calling a prepaid expense”) and the actual management fee he should have received. 

So how did the receivable grow from $538,864 on June 30, 2007 to $3,551,328 on June 30, 2012 if Ingersoll, as he’d claimed in multiple financial documents to the GTA board, booked each year’s fee overpayment as a receivable and paid it off at the beginning of the next fiscal year? 

Simple: after Ingersoll paid the previous year’s receivable balance using Michigan state aid money provided to the Grand Traverse Academy, he then transferred that money back days later from the Academy’s bank account to one of his Smart Schools accounts, and created a new, and even larger, receivable balance. (Ingersoll finally admitted the multi-year scheme on December 9, 2015 while testifying during his still ongoing sentencing hearing). 

Representatives of the GTA board, including its then-president Noss, met with attorneys from the Thrun Law Firm and Steven Ingersoll on May 20, 2013. During the meeting, Ingersoll admitted owing the charter school at least $3.5 million but asked to have the debt classified as a “loan”. 

According to the May 30, 2013 Thrun Law Firm legal recommendation to Noss and the GTA board, the issue before the board related “to funds withdrawn from the Academy’s general fund by Steven Ingersoll and/or representatives of SSM, which exceed the amount appropriated or authorized by the Board to be paid to SSM for either management fees or the reimbursement of Academy expenses.” 

The letter estimated Ingersoll’s debt to the Traverse City charter school at $3,548,319 (based on information provided by Ingersoll’s handpicked CPA, Tony Henning). 

As Henning had relied solely on “financial reports and representations of Steve Ingersoll” to determine the amount, Thrun repeatedly urged the GTA board to “independently verify the full sum due” instead of merely accepting Henning’s number. Representing the interests of the GTA and its board, not Steven Ingersoll and Smart Schools Management, Thrun affirmed in its May 30, 2013 letter that “Steven Ingersoll openly admitted, when asked by us during the May 20th meeting, that a conflict exists between his personal interests and the interests of the Academy.” 

However, the GTA board ignored Thrun’s recommendation to verify Ingersoll’s numbers, instead using CPA Henning’s exact $3,548,319 amount in its June 13, 2013 “demand letter” to Steven Ingersoll. 

On June 30, 2013, the GTA board and Ingersoll agreed on a “repayment plan”, revealing the details in the Academy’s 2013 financial statement. The agreement allowed Ingersoll to “work off” his balance by foregoing management fee payments over the remaining three fiscal years of his management contract. 

However, a November 25, 2013 letter from Doug Bishop, the GTA board’s former attorney, to Michigan Department of Education auditor John Brooks revealed one stunning exception: although the board of directors, headed at that time by longtime Ingersoll business associate Mark Noss, publicly stated in the Academy’s 2013 financial statement its decision to credit Ingersoll’s future management fees against his $2.38 million dollar “prepaid expense” balance until it was reduced to zero, the Board still authorized a cash payment of “approximately $332,000 in pre-obligated, annual debt service of SSM with regard to GTA has agreed to pay to SSM.” 

After publicly revealing in its 2013 financial report, and sticking to the story that Ingersoll would be working off his prepaid balance by foregoing any future management fee payments, the Grand Traverse Academy board instead paid Ingersoll $332,000 so he could have the cash flow necessary to make payments on a personal, unspecified Smart Schools Management business debt. 

GTA board president Mark Noss later oversaw an early morning meeting on March 19, 2014 where the board voted unanimously to officially “withdraw from the management contract with Smart Schools Management, Inc.” Minutes later, the board accepted 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. GTA records revealed Noss continued to serve in a dual role as a board member until its May 2014 meeting, nearly two months after signing a multi-year, multi-million dollar management contract. 

Steven Ingersoll was indicted on April 9, 2014. Ingersoll was charged with three counts of wire fraud, two counts of tax evasion, one count of conspiracy to defraud the government, and one count of attempted conspiracy. (Four co-defendants, including Ingersoll’s wife Deborah, were also charged on various fraud and conspiracy counts). 

An April 24, 2014 superseding indictment further charged Steven Ingersoll with tax evasion regarding his attempt to “disguise the money allegedly received from Grand Traverse Academy” — which was also named by the government as the motive for the bank fraud conspiracy and tax evasion conspiracy. 

Steven Ingersoll was convicted of three counts of fraud and tax evasion on March 10, 2015. (Ingersoll’s sentencing hearing began on October 21, 2015 and is scheduled to resume December 15, 2016.) 

On March 15, 2016, an accountant formerly employed by Mark Noss at his Full Spectrum Management revealed to the GTA board and the charter school’s authorizer, Lake Superior State University, that Noss had been making $12,500 monthly payments (and in some months, much more) to Ingersoll since April 2014, shortly after Noss assumed control of the GTA. 

Using information provided by the whistle blowing accountant, (who resigned shortly after making his revelations public), federal prosecutors were able to substantiate that between April 8, 2014 and March 1, 2016, Steven Ingersoll received a total of $627, 624.14 from Full Spectrum Management, the educational services provider owned by Mark Noss and holder of the management contract for the Grand Traverse Academy or Grand Traverse Academy itself. 

All of that money went into accounts owned by Steven Ingersoll and his solely owned entities. 

An excerpt from the April 29, 2016 document: “In assessing the credibility of Habermehl as a witness and Noss as an affiant in this matter, the court must consider the relationships they have with Ingersoll and how their financial and personal relationships with Ingersoll have influenced the representations that Habermehl and Noss have made to the court. The evidence discussed above casts doubt on the credibility of Ingersoll, Noss and Habermehl.” 

In a December 5, 2016 court filing, government prosecutors stated the following: “The GTA board at all relevant times has been controlled by Ingersoll’s friends and business associates. The GTA board as an entity was not victimized by Ingersoll’s diversion of per pupil state aid from that publicly-funded school. It cost the GTA board nothing to acquiesce in Ingersoll’s manipulation of the GTA budget to conceal his diversion of funds that should have been used to educate GTA students. By his conduct, however, Ingersoll did victimize the students, faculty and staff of the GTA, as well as the tax-paying public at both the federal and state level. In fact, now that Ingersoll is (hopefully) prevented from engaging further in his shell-game financing of his self-aggrandizing Bay City Academy project with Grand Traverse Academy funds, the continued viability of BCA is becoming increasingly questionable.” 

There is an important story here. Ask yourself why you’ve never heard of it.

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