Successes from our Case Files

Here are real-world case studies of just some of ABL Exam Pros' successful exam services implemented for our clients:

The Case of the Unknown Inventory Costs

Inventory costing is an often overlooked area of analysis for examiners. ABL Exam Pros provides an expert review of inventory costing and costing systems. Why? If you don't have good inventory costing, you can't trust the income statement or balance sheet numbers. Don't be surprised.

This case study involves an old New England manufacturer of custom plastic parts and components. This customer had been with the same bank for a few years and had been the subject of several bank exams, yet no one had cited any issues with the inventory costing system. When the Company was transferred to the bank's workout department, ABL Exam Pros was called in. All the employees were quite cordial and willingly told everything they knew about their inventory costing system—which as it turns out wasn't really much, because no one at the Company had paid much attention to the costing system in five years.

Through our exam efforts, we discovered that a consultant had been hired by the Company over five years ago to review inventory, and came up with costs for the purpose of preparing year-end financials. The consultant had developed a formula based on a flat percentage of the sales price of a custom product. The customer had continued to carry forward this method from year to year despite changes in customers, product mix, and cost of raw materials. Since the Company did not know the real cost of the product, the quoted sales price was often too low (because they lost the jobs that had been bid too high). After years of following this process, the Company began to lose money despite increased sales.

The Resulting Decision: The information discovered from ABL Exam Pros' exam was a key element in the bank's decision to proceed with liquidation.

The Case of the Misunderstood Shipment

The first thing most examiners learn is how to do a receivable invoice and ship test, but information can still be overlooked. In this case, another exam firm performed a survey or investigation exam for a new business that the bank was about to book. The exam results showed that the shipping test results were satisfactory. However, when the bank tried to perform phone verifications of various receivables, the largest customer (who owed 30% of the Company's total receivable balance) refused to verify the balance due. But the Company insisted that the receivable was valid. That's when ABL Exam Pros was called in. We visited the Company to perform a limited scope audit of receivables in order to help explain why the bank was unable to verify the receivable. Our exam efforts discovered that the receivable was properly supported by invoices that showed a shipping address that matched the customer's address. Further, we were able to determine that the goods were shipped by UPS and we verified that the goods had been delivered.

However, through closer examination of the UPS shipping information, we noted that the shipping address was different than the customer's address and was actually an outside contractor. Further discussion with the Company revealed that the outside contractor would be providing value-added manufacturing over the course of the next six weeks, and then the goods would be shipped to the customer of record. Our exam services determined that, amazingly, 30% of the borrowing base was not really valid.

The Resulting Decision: The bank's decision to engage ABL Exam Pros was fortunate—as our exam discovered the invalid borrowing base before the loan was booked. Appropriate reserves were put in place by the bank and a potential disaster was avoided.

The Case of the Red Binder

The phone rang late one afternoon and the bank had some troubling news regarding an exam in process by one of its own staff examiners. The examiner was unable to tie out cash records. The junior examiner had relayed that she thought the cash records had been kept in a separate "red binder" in the controller's office, but that management would not give her the binder. ABL Exam Pros was called in to perform a surprise audit the following day, even though the Company thought that the audit had concluded.

We arrived early the next morning at the Company and announced ourselves to the controller. Before taking off our coats or setting down our briefcases, we demanded to see the red binder. The stunned controller went to retrieve the red binder with us following closely behind. The controller set the red binder on the desk and began to open it and remove documents. "No," we said, "Please leave all documents in the binder." Reluctantly, the red binder was handed over intact. Upon reviewing the red binder, we determined that the Company was keeping two sets of records—one set included all the cash, while the other excluded credit card cash. The set of books that excluded the credit card cash was the set that was reported to the bank. Since the bank required all cash be used to pay down the loan, this was a violation of the loan agreement. We quickly reminded the customer of this fact.

The Resulting Decision: Based on the results of our exam efforts, the bank increased the exam frequency going forward to ensure that the Company was applying all cash to the loan as agreed, greatly improving the ability to pay down the loan.

ABL Exam Pros Industry Experience
  • Automotive
  • Airline
  • Apparel
  • Auto Floor Planning
  • Chemicals
  • Construction
  • Direct Marketing
  • Distributors
  • Financial Services
  • Food and General Grocery
  • General Manufacturing
  • Healthcare
  • High Tech
  • Jewelry
  • Meats
  • Media
  • Natural Resources
  • Oil
  • Plastics Manufacturing
  • Precious Metals
  • Printing
  • Professional Services
  • Publishing
  • Retail
  • Seafood
  • Steel Manufacturing
  • Textiles
  • Trucking