Fraud Identification Training Sept-Oct 2022

CASE STUDY 2

Situation: FLOOR PLAN LENDING

During the course of an examination, you are reviewing the loan file of a recreation vehicle (RV) dealer. Total advances exceed $2.8 million. The following information is obtained from the loan file: The RV dealer and the bank entered into a financing agreement wherein the bank agreed to fund the purchase of new RVs. The bank made three advances totaling $2.8 million to fund the purchase of 22 vehicles. In return, the RV dealer provided the bank with the manufacturer’s statements of origin to the vehicles purchased. No financial information was on file and lien positions had not been perfected. No payments have been received since inception. Review of information regarding the loan officers and other lending relationships revealed the lending staff has little knowledge or experience in floor plan lending. This was confirmed in discussion with President Hefler. Given the lack of payment or perfected security interests in the vehicles, you encouraged President Hefler to perform a floor plan check. She immediately proceeded to act on your suggestion. The following week you inquired as to the results of the check, and she reported that the visit to the RV dealer’s lot had accounted for only two vehicles. The RV dealer had informed her that many of the vehicles were located at a Vacation and Travel Convention; however, a visit to the show site failed to locate the missing vehicles. Three days later she again visited the RV dealer and again found only the two vehicles seen previously. You suggested that she might want to ask the RV dealer to provide a location list for all vehicles on the floor plan. President Hefler indicated she would follow-up on that suggestion. At the wrap-up meeting the following week, President Hefler reported that a listing had been obtained from the dealer which showed six vehicles in other states and the remaining group at another show. A visit to that site, plus another site that was stated as a location, did not result in finding the missing vehicles. Therefore, you indicated that you would be listing the balance of the loan as loss in the Report of Examination (ROE).

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