• Identified fraud totaling $1.2 billion and the various schemes supporting it.
• Provided evidentiary trail to the SEC, USPI and the US Attorney resulting in arrests of perpetrators.
• Identified impact of fraud on lenders’ reported collateral.
• Assisted counsel with the identification of “insiders” and “outsiders” who participated in the fraud.
• Assisted counsel in the development of various theories and related documentation to maximize recovery.

• Identified $18.5 million of accounts receivable fraud comprised of: $5.9 million of ineligible consignment sales; $4.7 million of phony billings; $5.9 million of invoice refreshing; and, $2.0 million of other financial reporting fraud.
• Identified fraud’s impact on lender’s reported collateral.
• Identified audit failures of Company’s independent auditors.

• Evaluated EBITDA and reduced components reported at $21,000,000 to $7,500,000.
• Evaluated EBITDA changes to determine whether adjustments were recurring or 1-time events; reconciled to audited financials.
• Evaluated monthly and year-end financial statement closing procedures.
• Modified internal processes to ensure accuracy of borrowing base reports.
• Evaluated procedural controls over customer returns.
• Investigated propriety of inventory costing methods.
• Reviewed interim and periodic physical inventory procedures; booked required adjustments.

• Uncovered borrower’s 10-year scheme to defraud $50,000,000 from lenders.
• Identified $7,000,000 of funds diverted to principals.
• Analyzed management’s adjustment of $46,000,000 of the total $58,000,000 of accounts receivable presented in borrower’s borrowing base certificate.
• Evaluated sales documentation and related evidence to determine validity and collectibility of the $46,000,000 of adjusted accounts receivable balances.
• Analyzed management’s adjustment of $12,000,000 of the total $26,000,000 of inventory presented in borrower’s borrowing base certificate.
• Developed daily cash, accounts receivable and inventory roll-forward procedures and controls to establish integrity of daily collateral reports.
• Established daily controls to monitor inventory movement, sales, and collections.

• Uncovered methods used by owner to defraud lender by $20,000,000, including falsified Letters of Credit (L/C) purchases, sales and cash receipts.
• Located evidence to support claims against former lender and borrower’s outside accountants.
• Provided analysis to counsel on legal matters such as account debtor, third party inventory warehousing services, reclamation issues, etc.

• Provided evidentiary support to reject or cancel open L/C commitments.
• Performed assistance on accounts receivable, resulting in collections of approximately $1,400,000.
• Discovered fraudulent reporting of shipments on borrowing base certificate.
• Performed site visits to 3rd party warehouse and consolidated inventory at a neutral warehouse location.
• Liquidated the FF&E and closed the borrower’s premises.

• Discovered that the majority owner had caused the Company to purchase all raw material from an affiliated company controlled by self at prices in excess of market values. These actions placed Company in violation of loan covenants.
• Discovered that the majority owner ordered over $3.7 million of cash received from trade receivables to be forwarded to an affiliate company, resulting in a loan receivable and an abrogation of existing covenants.
• Discovered that the majority owner had been allocating in excess of $3 million of SG&A costs from an affiliate company over a 4-year period to the Company. This negatively impacted the results of operations, requiring the Company to borrow money to meet cash shortfalls from operations and further breached standing covenants.

• Identified inventory overstatement requiring the restatement of audited financial statements, creating an unexpected over-advance on the borrowing base certificate.
• Discovered erroneous finished goods inventory costing procedures and created an accurate valuation methodology.
• Implemented internal control procedures for both the monthly physical inventory count and the purchasing / cash disbursement systems.
• Created and implemented the monthly budget and forecasting procedures, including an integrated cash budgeting and 13-week rolling cash flow process.
• Developed daily inventory roll forward reporting procedures and controls, and implemented a daily cash management system.

• Reconciled borrowing base certificate schedules submitted to lender with Company’s computer generated reports and identified various techniques used by borrower to overstate both accounts receivable ($11,000,000) and inventory ($5,000,000).
• Uncovered diversion of funds of approximately $7,000,000.
• Identified “off book” bank accounts.
• Identified over $1,000,000 of invoices which were “refreshed” by management in order to increase its borrowing base certificate.
• Analyzed bank accounts for preference payments, sources of deposits, and other unusual transactions.
• Analyzed financial statements, data and subsequent transactions to compile amounts owed from related parties.
• Documented affiliate activities.
• Evaluated appropriate inventory records to determine correct valuation.

INSOLVENCY AND REORGANIZATION SERVICES CASE STUDIES

• Detailed and documented fraudulent sales submitted to lender totaling $18,284,000.
• Accumulated back-up documentation supporting fraudulent “bill and hold” sales totaling $28,500,000.
• Gathered supporting documentation regarding “refreshing” or “ever-greening” of invoices totaling $8,100,000.
• Discovered over-valuation of finished goods inventory of $30,000,000.
• Analyzed 53 bank accounts over 3 months for preference payments, sources of deposits, and other unusual transactions.
• Established cash controls and cash operating projection system.

• Identified fraudulent reporting and methodology used to prepare false interim financial statements.
• Prepared YTD financial statements to reflect accurate balances, cashflows, and operating results.
• Adjusted EBITDA from a positive $7,000,000 to a negative $2,000,000.
• Identified an additional $1,500,000 under-reserve in accounts receivable and inventory.
• Calculated an additional accounts receivable reserve need of $500,000.

• Designed, installed, and monitored cash management systems and procedures.
• Evaluated company’s weekly cash receipts, disbursements and funding requirements for lending group.
• Prepared detailed balance sheet, P&L, and cashflow projections for the forthcoming fiscal year.
• Established 13-week cash forecasting system and integrated with detailed projections.
• Prepared profitability analysis of major customers.
• Represented lenders and monitored Chapter 7 liquidation.

• Analyzed management’s adjustment of $46 million of the total $58 million of accounts receivable presented in borrower’s borrowing base certificate.
• Evaluated sales documentation and related evidence to determine validity and ability to collect the $46 million of adjusted accounts receivable balances.
• Analyzed management’s adjustment of $12 million of the total $26 million of inventory presented in borrower’s borrowing base certificate.
• Identified over $1,000,000 of invoices which were “refreshed” by management in order to increase its borrowing base certificate.
• Developed daily cash, accounts receivable and inventory roll-forward procedures and controls to establish integrity of daily collateral reports.
• Established daily controls to monitor inventory movement, sales, and collections including a 13-week cash flow forecasting system maintained by management and monitored by B&A.

• Assisted in collecting approximately $1,400,000 of accounts receivable.
• Liquidated FF&E and closed borrower’s premises.
• Visited 3rd party warehouses and consolidated inventory to a neutral warehouse.

• Reconciled borrowing base certificate schedules submitted to lender with Company’s computer generated reports and identified various techniques used by borrower to overstate both accounts receivable ($11,000,000) and inventory ($5,000,000).
• Uncovered diversion of funds of approximately $7,000,000.
• Identified “off book” bank accounts.
• Identified over $1,000,000 of invoices which were “refreshed” by management in order to increase its borrowing base certificate.
• Analyzed bank accounts for preference payments, sources of deposits, and other unusual transactions.
• Analyzed financial statements, data and subsequent transactions to compile amounts owed from related parties.
• Documented affiliate activities.
• Evaluated appropriate inventory records to determine correct valuation.