Fraud Articles and Case Studies

Pappas & Company uncovered intentional inflation of sales and profits, and found the company actually on the brink of bankruptcy. In addition, Pappas' thorough examination of the company's facilities disclosed serious deterioration and disrepair.

Pappas' work saved his client from making an unwise acquisition (for approximately $8 million) and undergoing years of expensive litigation to remedy it. ●

Detecting Fraud

When its outside CPA firm failed to determine why a company's profit margins had slipped, Pappas & Company, Ltd. was brought in at the recommendation of the company's lender.

Pappas examined the company's facilities, operations and financial data, evaluated its systems, and interviewed its employees.

Pappas found serious shortcomings in systems and controls, recruited a skilled controller and, working with him, discovered a series of misappropriations by a number of colluding company employees, totaling more than $300,000. ●

Engineering a Turnaround

Acquired through a leveraged buyout, a company with excellent product lines and strong sales and marketing nevertheless consistently lost money, and ultimately became unable to pay its lenders and vendors in a timely fashion.

The owners brought in Pappas & Company, which worked with key executives and employees, examining the company's operations, facilities, financial information, agreements, operational systems and capital structure. Pappas found the critical problems: use of long-term capital equipment leases, thus increasing financing costs; inadequate management information systems; undetected profit leaks; an untrained internal financial staff; and careless oversight by the company's outside auditors, resulting in omission of major assets from the financial statements.

Pappas devised and helped the owners implement a turnaround plan which converted debt due the company's former owners to preferred stock, thereby significantly reducing the strain on cash flow; obtained meaningful debt forgiveness; and negotiated a two-thirds reduction in the interest rate, all of which were instrumental in restoring the company's ability to obtain outside financing and set it on the road to its present success. ●

Establishing Controls

A family-owned business found its profit margins and its bank's confidence eroding. A non-family member executive asked Pappas & Company to examine the company, evaluate the situation, and recommend remedial steps.

Pappas uncovered a lack of profit-leak controls, uncontrolled receivables, double payment of vendors, undercapitalization, and inadequate management organization and coordination resulting in an inability to link sales and marketing efforts to profitable product lines.

Pappas helped develop and implement tight operational and financial controls, and a modern information system, helping to convince the company's bank to joint venture a loan at reduced interest rates and ultimately return the company to profitability. ●