Thread Options 
|
#1156636 - 04/02/09 05:24 PM
SAR for Inflating Balance Sheet?
|
Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
|
We have a company that moved a huge amount of money from their LOC to their checking account for one day, then moved it back into the LOC the very next day. It happened on March 31st. I was informed that this is a fairly common practice among such companies (equipment contractors) and is done to improve the asset profile of the company in order to obtain a higher bond rating (or something like that). I consider that this is SARable activity, since this company will likely use this false report to get future contracts in the bidding process, probably with the state government.
Should I file a SAR on this type of activity?
_________________________
Sorry, did I just use my outside voice?
|
|
Return to Top
|
|
|
|
|
#1156647 - 04/02/09 05:30 PM
Re: SAR for Inflating Balance Sheet?
YosemiteSamIAm
|
10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
|
Since when is an accounting trick illegal? Unless you know that they inflated their cash balance and didn't inflate their liabilities, what net impact does it have on their balance sheet?
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com
|
|
Return to Top
|
|
|
|
|
#1156670 - 04/02/09 05:40 PM
Re: SAR for Inflating Balance Sheet?
rlcarey
|
10K Club
Joined: Sep 2002
Posts: 13,965
TN
|
I remember - years ago mind you - of contracts doing that when I was working at a different bank. I didn't understand it then and I don't understand it now.
_________________________
My Opinions Only
|
|
Return to Top
|
|
|
|
|
#1157837 - 04/03/09 10:00 PM
Re: SAR for Inflating Balance Sheet?
rlcarey
|
Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
|
Since when is an accounting trick illegal? Unless you know that they inflated their cash balance and didn't inflate their liabilities, what net impact does it have on their balance sheet? Since...Enron?
_________________________
Sorry, did I just use my outside voice?
|
|
Return to Top
|
|
|
|
|
#1157874 - 04/03/09 11:03 PM
Re: SAR for Inflating Balance Sheet?
YosemiteSamIAm
|
Gold Star
Joined: May 2004
Posts: 331
Texas
|
Randy's point is basic accounting: assets must equal liabilities. If you inflate the assets, you must also inflaet the liabilities. Otherwise the balance sheet is not so in balance.
|
|
Return to Top
|
|
|
|
|
#1157955 - 04/04/09 07:30 PM
Re: SAR for Inflating Balance Sheet?
Hrothgar Geiger
|
Junior Member
Joined: Apr 2009
Posts: 27
|
It is also helpful to know what they are trying to do with this in the long run. Are they applying for a loan? Are they being audited? Is it for a new contract opportunity? I would SAR, it depending on what they are trying to do.
|
|
Return to Top
|
|
|
|
|
#1158097 - 04/06/09 02:12 PM
Re: SAR for Inflating Balance Sheet?
Hrothgar Geiger
|
Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
|
Apparantly this is an accounting "trick" that has the effect of showing more liquidity than is actually there. Yes, I understand they should be showing a corresponding liability on the other side but, if they did so, what does the one day movement of cash get them? What about the timing (last day of the first quarter)? The activity appears (to me) to be suspicious. Several people in accounting and lending have acknowledged that this is a fairly common practice among firms in the construction industry. There must be a reason and, if it is not to make use of the funds they moved, then, what is it? BTW, we are talking millions being moved.
_________________________
Sorry, did I just use my outside voice?
|
|
Return to Top
|
|
|
|
|
#1158278 - 04/06/09 04:35 PM
Re: SAR for Inflating Balance Sheet?
Hrothgar Geiger
|
Gold Star
Joined: May 2004
Posts: 331
Texas
|
Actually, Randy's point is that if the company reported increased cash (asset) and a corresponding liability (the loan), then the company's equity hasn't changed; the assets minus the liabilities equals the equity.
The line of credit isn't anything on the company's balance sheet until it's used. By activating it, taking out cash, they actually get to show their ability to borrow money by showing a liability. At the same time they show increased liquid assets, the cash, as the ability to cover its borrowing. An outside party can calculate their debt coverage ratio. If they keep an untapped LOC, that's all invisible to an outside review.
Why would that be SAR-able? That was my point. Thanks for making it sound a whole lot more intelligent!!
|
|
Return to Top
|
|
|
|
|
|
Previous Thread
Index