Question: Please Give Me the Cash....or Take It? Mr. Thomas Oversight is the external auditor for I&J Manufacturing. I&J is a small manufacturer of metal trailers, horse trailers, and other tow-behind rigs. In the economic downturn, I&J has been facing cash flow problems. Casey Turnbull is the President of I&J, and he believes the decline in company's sales is only temporary. Recently, Mr. Turnbull was in Orlando attending an annual business conference for U.S. trailer manufacturers. While at the conference, he was introduced to Michael J. Carter. Mr. Carter is a loan originator, and he indicated his business is providing short-term loans to small manufacturers like the company operated by Mr. Turnbull. Casey knows that Mr. Carter has been talking to other businesses about providing financing. Casey thinks Mr. Carter can provide the financing for Casey.
Casey's normal lines of credit have not been available during the economic slump, and he is getting desperate to increase his cash flow. Although the loan from Mr. Carter would be at a higher interest rate, the rate is acceptable considering the alternatives. Mr. Carter has asked for a loan origination and upfront fee of $100,000 for a $950,000 loan. Casey has the money, but it would just about use up his entire cash balance. Casey asks Mr. Oversight, his auditor, if he thinks the arrangement is on the "up-and-up"? Mr. Oversight checks to determine where the $100,000 check is to be sent, and he finds the check is going to an account at the Bank of New York. The Bank of New York is a well-recognized bank in New York City that has been in business for decades. Based on that information and the documents sent to Casey by Mr. Carter, Mr. Oversight recommends that Casey go ahead and sign the loan documents and forward the check to the Bank of New York. Do you believe there are other due diligence measures that should have been taken? If so, list and describe those measures.