Submitted by Jim Herst on Mon, 2007/08/27 - 13:37.
Two Big Lessons from Real Life: Financial Oversight, and Whose Name is the Company Credit Card in Anyway?
Two bought a franchise as partners, a business-to business service operation. Partner #1 was to do the selling, the other, #2, the inside buying, scheduling, training, etc. Business was very good. Profits were immediate and growing. Their principal supplier, the franchisor (ZOR), agreed to take credit card payments for supplies which were more than 80% of all the franchisee's (ZEE) purchases. Being new, the two arranged and used three credit cards from three different issuing banks. Each card was issued in the name of the business. This worked well, their monthly need for credit with the ZOR exceeded the limits of any one card.
After years of successful growth, Partner #1, having completed a divorce, went to Las Vegas with his soon to be next wife. He took more than one gamble. He lost big money. So he used personal information about Partner #1, he obtained a new credit card from still a different credit card issuer and obtained high credit of $50,000.00. That card, as were the first three, was in the name of the business, a corporation.
Partner #2 then began making minimum payments on company checks to meet the monthly statements on the $50,000.00 credit line. He had personally used 100% of the $50,000.00 You guessed it, confronted by Partner #1 he denied he had improperly sought that credit line (he lied) and stated he believed Partner #1 made the application and funds due were business expense. Other malfeasances soon were uncovered; yet Partner #2 had excuses as to each. We obtained a copy of the application for that 4th credit card, and it contained what appeared to be the signature of Partner #1. Yes, it was forgery!
The plot gets thicker. There were more instances of fraud by Partner #2, using personal data about Partner #1 or otherwise pledging the credit of the business to obtain money then used by Partner #2. The case is now going to a Grand Jury, and includes a charge of Identity theft as well as fraud. At this writing, the credit card issuers are in limbo and I admit I don't know what the eventual outcome will be. All four card issuers had stopped card use, we have since reinstated credit on behalf of Partner #1; thus the business is operating.
One lesson: oversight is always essential.
Another lesson: credit cards issued in the name of a business are almost always issued on the personal credit and signature of the applicant.
At the risk that I'm advertising, this situation would not have been adjusted unless handled by an experienced third party. The Grand Jury will hear this matter in mid September. I'll provide an up-date then. If you are facing any area of debt problems, I again invite your anonymous submission for review.