Welcome to my “professional” blog.  I will use this space to talk about issues we are facing at ECG Collateral Services, Inc.    Hopefully this will become somewhat of a resource for others in the same field or for those facing the same or similar issues…..

I’ve been in this line of work (collateral/due diligence auditing) for a long time, over 20 years.  I am still learning new things and still trying to perfect the things I already know.  If nothing else, perhaps this blog (through the prospect of public exposure and humiliation) will spur me on to finally master those traits that either still elude me or that occasionally fall by the wayside. Continue reading

The “F” Word

Even though it has five letters, for most lenders fraud is a four letter word.  Usually the course of action when fraud is found is not to go running to the nearest prosecutor or law enforcement agency to have the perpetrators charged, but rather to call a meeting with the principals involved and to work out a reasonable way for the lender to walk away from the transaction with no loss or as small a loss as possible.  The threat of litigation and possible prosecution is usually enough to ensure the cooperation of the offending parties.  Of course, lenders will press charges when a fraud is so egregious that there is no way a lender will get paid back, if it causes harm to other parties, or if a lender feels they may have a better chance of collecting more if the offending parties are prosecuted. Continue reading

A Picture is Worth a Thousand Words


Generally I am a proponent of graphs and tables.   I think that when presenting data in due diligence or collateral examination reports, graphs and tables present it in a pure and unbiased state.

Pure data is the best way to underscore a point or opinion.  For example, if after performing test counts an examiner determines that there is a need for a reserve due to large negative variances, a table that shows this will only help support this position.  A table that is formatted and presented efficiently will help the reader understand the issue quickly and easily. Continue reading

When it comes to communicating with customers, less is not more.

This post is one that I would like to avoid writing, as I am going to admit committing one of the cardinal sins in due diligence/collateral auditing and being a service provider in general.  Not only have I committed it, but I have committed it twice in the last month!  Hopefully by admitting it here, I can help someone else avoid the same misstep.  The issue I am going to be discussing is timely communication of audit findings (or the lack thereof).

Before I go on, let me assure any current or prospective clients that the instances mentioned below are exceptions and not the rule.  Throughout my career I have practiced what is preached; however, I am human and sometimes I just mess up.  Of course I have reasons for the transgressions discussed; however, those reasons do not excuse the fact that they occurred.   I take full responsibility for them and I will not bother to try and justify them by discussing the reasons involved.  Continue reading

Liars Figure and Figures Lie


Examiners love numbers.  We like to work with them, write about them and interpret them.  We use numbers to describe pools of collateral and/or the results of our analysis of those pools.  Some of our favorite numbers are averages, variances and other statistical metrics.

Often we gain great comfort in the results of testing as well as make bold proclamations about those results due to an average result or “net variance.”  Unfortunately, our reliance on these comforting metrics is often misguided and worse, can lead to misinformation in our reports. Continue reading

Contras – Month end balances may not be enough

I recently completed an audit where the lender was backed into an over advance through contras. (the over advance occurred before ECG was called in)  The way that this occurred is pretty interesting.  When I was involved with training audit staffs, we often cautioned against this very thing happening.  This is one of the few times  that I have actually seen it occur. Continue reading

Technology and the Field Examination

One of the benefits of having been around for a long time is that you have an appreciation for just how far things have come.  On the other hand, you also have insight as to just how far we still have to go.  During this post, I’d like to remind everyone of how good we have it yet at the same time expose where we have perhaps missed the boat or have yet to fulfill technology’s promise.  This post will not address performing an EDP audit or an audit of a company’s MIS systems.  It is intended to address how the field examiner utilizes technology that is prevalent and easily accessible. Continue reading

Accruals and Dilution

When performing exams, a recurring conversation that we have with borrowers (and sometimes lenders) is the idea that accruals for potential offsets such as co-op advertising and volume rebates should not be reserved for because the subsequent credits are captured in dilution.  This is not the case.

The example below illustrates why the accrual should always be reserved for. Continue reading

Footing and Cross Footing an AR Aging with Monarch


We are very pleased to have our first guest contributor; Mr. David Gross. David’s company, www.MrMonarch.com, provides Monarch Training and consulting to a wide range of clients, David also has a course designed specifically for Commercial Lenders, please feel free to contact him at 440.646.0332 or david.gross@MrMonarch.com.

Below is David’s post on re-aging and re-footing an AR report received from a client: Continue reading

How to Treat Progress and Percentage of Completion Billings

There was a time when lenders avoided certain types of receivables such as progress and percentage of completion billings.  However in today’s world this no longer seems to be the case, we frequently see revolving lines of credit that are secured by these types of receivables when performing field exams.

Before you get into the mundane details of the post below take a minute to check out the Disney video, its pretty neat to see history being made.  I’m sure there was a lot of percentage of completion and progress billings taking place during this project!  About three minutes into the video, a time lapse video of Main street being built is shown. Continue reading