Atlanta Home Loan

Case Summary

Atlanta Home Loan was a mortgage lending and financing company established in Atlanta, Georgia, founded by Albert (Al) Fiorini. By the summer of 2002, the company had grown exponentially. Simultaneously, Al was admitted to an MBA program at the University of Southern California in Los Angeles. He was left to decide among the following three options to do with his business: He could find someone to run it, sell it, or shut it down. Al decided that he did not want to close AHL, and that he would let someone to run his company on his absence.

Al decided to stablish a partnership with Joe Anastasia. He was a loan officer that had worked for the company for about two months, but was known to have years of experience. Despite his short time with AHL, Al believed he would be a good candidate. By July 2002, Al named Joe his partner in a verbal agreement. Joe would invest $8,400 to rent an office and to acquire office equipment, and they would share AHL’s profits equally. Nevertheless, Joe did not show up the day the partners were to meet their new landlord, and disappeared for two days. Al was not comfortable by allowing Joe to run the company, and decided to make a deal with Joe to terminate their agreement. After this, Al hired a new manager that lasted about three days before quitting. Faced with few options, Al decided to give an opportunity to Joe before leaving to Los Angeles the next day. Given this, Al and Joe reinstated their previous agreement. Although Al’s efforts to make things work, Joe continued to be absent and lastly he took loan files home and did not come back to the office.

In September 2002, Al decided that he could not trust Joe. He recurred to Wilbur Washington whom was previously introduced to him by Joe. Wilbur was also known to have experience in mortgage banking. Consequently, Al signed a written partnership and agreement with Wilbur. This agreement stated that Al would offer the use and privileges of AHL until his return, and Wilbur would provide AHL with his management services. At some point, Wilbur asked for authority to sign checks against AHL’s bank account, but Al refused. Instead, he left with Leticia Johnson (office manager) four signed checks to be used only with his permission.

In late September, Wilbur hired a new loan processor.  When Al noticed this, he sent a note to Wilbur telling him that his processor to loan ratio was too high. Wilbur did not take it nicely and responded by telling him that he was managing the company the best way he could.

On October 1, 2002, Wilbur wrote checks to himself and Leticia using the pre-signed checks that Al had left. Since the checks were written against un cleared funds, the checks bounced. Al had been monitoring the bank activity on the internet, and noticed that the checks were written without his authorization and that they had bounced. He called Wilbur and his explanation was that he had withdrawn money to pay the employees. After other attempts from Al to stop Wilbur and Leticia to write any other checks, Wilbur managed to release more payments.

Al decided that he could no longer trust Wilbur, and asked a friend of his to act as his agent to fire all the employees in AHL, but they refused to go. Al tried to reach help from the police but Wilbur convinced them that he was the owner and they left. In October 15, Wilbur opened an account at Citizens Bank & Trust. When Al found out about the second bank account, he informed the bank that Wilbur had opened a fraudulent account but CBT refused to freeze the account or return the money. After this, Al called the FBI but they did not show interest on the case. Wilbur renegotiated with the landlord the office lease, and established AHL as his company. Finally, Al lost about $15,000 in licensing, his business, and he was forced to sell his home.

1. Identify the controls that Al Fiorini implemented to manage his business (both before and after he went back to school).

Controls implemented before Al Fiorini went back to school:

Result Controls:

• Telemarketers received as payment a combination of an hourly wage of $10.00 per hour, plus a performance bonus for lead produced.
• Loan officers were paid 40% of total loan revenue on AHL loans generated, and 60% on loans they generated.

Action Controls:

• Telemarketers handed the potential clients’ names to Al, so he could distribute the names to AHL’s loan officers.
• Monitored the loan application per lead ratios and their tendencies.
• Monitored the activities of loan offers and tracked the number of credit inquiries.
• AHL grew exponentially under Al’s direction, all employees took care of their corresponding obligations.

Personnel Controls:

• Al was in charge of the hiring process, and personally selected his employees.

Controls implemented after Al Fiorini went back to school:

Result Controls:

• Monitored AHL’s operations from California.
• Forwarded all AHL’s company’s mail to his California address.
• Tracked employee’s head count, the number of leads produced, credit inquiries requested,
• Al was the only person to sign checks from AHL’s main bank account freely.
• loan applications funded, office expenses and bank activity.

Action Controls:

• Al would spend 3 to 4 hours per day on the phone with employees, especially loan officers.
• Letitia Johnson was the only person approved to use four signed blank checks from the main account only with Al’s authorization.

Personnel Controls:

• Al was in charge of the hiring process, and selected Joe and Wilbur to be his partners.

2. What went wrong? Did Al use the wrong types of controls? Did he use the right types of controls but fail to design or implement them properly? Or was he just unlucky?

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