Case Study 22 – Balance Sheet Repaired

How To Clean Up A Balance Sheet

A home health care company with over $85 million in annual revenue using non-accountants to do the bookkeeping was producing a balance sheet with erroneous balance sheet categories and about $15 million of undepreciated and non-existing assets on the books along with about $60 million worth of missing third party payer claims was headed for disaster with this information on the balance sheet, not only with regulatory agencies, but with overvaluation of the company’s assets, and undervaluation of its liabilities.

Revealed approximately $75 million dollars’ worth of over estimation of assets and missing third party payer claims, resulting in the avoidance of fatal strategic decision.

Upon examination of the balance sheet, it was obviously clear that the previous Controller, who was surprisingly a CPA, had poorly managed the design of the Chart of Accounts in an attempt to comply with regulations from various states in reporting outstanding medical claims while managing a staff of poorly trained bookkeepers. As a result, exceptional claims were reported as revenue and were never paid or written off, overstating revenue and Accounts Receivable by about 60 million dollars.  There were no accounting records of the claims except a claims billing service’s Excel spreadsheet reports.  These records were lost when a transition was made from the Microsoft Dynamics accounting system to Quickbooks Enterprise the year this happened. There was a data loss in the transition that was unaccounted for.  At the same time, the depreciation schedules for the company’s assets were all done on a spreadsheet model that had been mishandled, and assets were left on the books without any depreciation, and others that were continuing to be depreciated beyond their value even after they were disposed of, with a net overvaluation of about $15 million. There was also a mix of non-standard balance sheet accounts carrying non-existent assets and liabilities used as parking places for balances without legitimate explanation. The structure of these entries also overvalued the gross margins. Repaired the balance sheet by validating each account and writing off unverifiable balances, resulting in a reduced book value of around 75 million dollars, which altered the company’s strategic plans that would have caused the company to fail due to a lack of resources.