Case Study: Investigation

Overview

  • Company – Publicly owned and privately operated correctional facility
  • Bond holders initiated an investigation into the management of a local government backed correctional facility after the death of a federal inmate, leading to a financial crisis and default on bond payments
  • A consultant with vast industry experience asked Fair Consulting to collaborate and provide the financial expertise required for the review

Objective

  • Investigate the financial records to identify signs of poor management or fraud

Approach

  • Review past audited financial statements, budgets, and internal reports
  • Assessed compliance with Bond Holder agreements and government statutes

Results

  • Identified instances of fraud and illegal acts by the CEO and CFO who were terminated and prosecuted:
    • Unauthorized payments categorized as unused vacation payouts to both CEO and CFO
    • Utilizing reserve funds for operational purposes in violation of bond holder agreement
    • Avoiding a going concern statement from auditors by purposely delaying report issuance for over a year in violation of state laws
    • Provided recommendations for new financial controls and reporting including a balance sheet review, where bondholders could identify when management was using required cash reserves for operations without proper approval

Value

 

  • Despite being audited annually, management was able to hide their frauds through collusion and deceit
  • Bond holders were satisfied for the evidence needed to bring in new management, and the governance controls added allowed more transparency into their investment