GLC Limited dba Global Liquidation Centers
Financial Assessment & Forensic Accounting
GLC Limited was a retailer selling discounted general merchandise. The Company’s products fit in to the major categories of housewares, furniture, appliances, seasonal goods, apparel and domestics, health and beauty aids, packaged food and home cleaning supplies. They also made several very large purchases for items such as ready to assemble kitchen and bath cabinets, pottery, perfume, and food and beverage items that were nearing their expiration date. In addition to the discount operation, the Company had two specialty stores, focusing on general hardware merchandise and the other on team sporting goods and apparel.
Three years after formation, the Company sought out outside investors to fund its operations. With assistance from parties in the collegiate coaching field, the Company raised over $80 million with repayment terms ranging from three to 12 months and interest rates from 30 to 133%.
MainStream was engaged to perform a financial review and business assessment to gain an understanding on the condition of the Company. We also performed forensic accounting services to determine how many dollars had been received by investors, who the investors were, how the money had been used, how much cash was still in the possession of the Company, and where the cash was located.
In general, the Company had no policies or procedures and what records existed were not well maintained. There was no inventory system in place and no internal tracking of inventory. The accounting system missed bank accounts, in addition to entries being incorrectly classified. For a few of the bank accounts, the primary initial investor had a checkbook and also communicated to the Company what payments should be made to whom and when the payments were due. The Company had over 90 investors, some of which were indirect investors through other parties.
MainStream worked with the Company and the financial institutions to obtain all available documentation and records to complete a three-year analysis. With the assistance of the Company, purchases were analyzed to ensure appropriate classification in the financials. As significant information was missing, it was necessary to completely re-build the financials. Research was completed to determine basic information such as:
What had been purchased
When it was purchased and from who
Which investor funds had been used in the purchase of the inventory
How much had been spent on inventory
Where the inventory had been sold
How much the inventory was sold for, and,
Where the cash from the sales ended up
While in most organizations this type information is readily available, in this case it was non-existent. To complete the financial assessment and forensic accounting, we were required to go all the way back to bank statements and other records to establish and verify the information.
MainStream presented a three-year assessment with financial statements to understand what happened to the Company. The assessment was able to depict the issues with inventory and cash management. In addition, management borrowed money for other businesses, purchased a couple of businesses, conducted several lease buy-outs, increased labor costs, and incurred other fees. The financials were ultimately used to assist with filing a Chapter 11 bankruptcy for the organization.