Fraud Identification Training Sept-Oct 2022

CASE STUDY 14

Committee minutes show that Charter reported both of the AquaVal loans to the Loan Committee. The minutes also recorded that Loan Officer Charter presented both loans as being SBA guaranteed. The 12-31-X9 company prepared financial statement made part of the minutes showed total assets of $1.2 million and total liabilities of $685M over net worth of $515M. The examiner reported that the credit file contained all of the documentation necessary for an SBA guarantee. He also reported that it was good the bank obtained the SBA guarantee because the financial condition of the company has steadily deteriorated as illustrated by the monthly financials obtained from the company. In a CPA compiled statement as of 12-31-X9, the company reported Total Assets of $1.3 million and Total Liabilities of $975M over Net Worth of $325M. The current and debt- to-worth ratios were 0.62 and 3.0, respectively, and the company operated at a $250M loss after depreciation of $175M. In a 12-31-X8 CPA compiled financial statement, the company had total liability of $725M over net worth of $575M. Fortunately for Charter, the two loans are delinquent only two monthly payments and the Loan Committee doesn’t review loans if they are not on the watch list and not more than 90 days delinquent. Senior Vice President Harold Fife, a/k/a “Dirty Harry”, stated he would terminate any officer who allowed a customer to become delinquent 90 days or more without a workout plan in place. Loan Committee minutes do not provide evidence to verify that Charter ever reported the deterioration to the committee, even though he had several opportunities to do so over the last year. In loan discussion, Charter told the examiners he received a verbal commitment from MicroBanc to refinance the debt within 30 days.

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