Bankruptcy of drug testing company

Brief

With experience of many similar healthcare bankruptcies, our partner was tasked with investigating the underlying causes and the scope for recovering the investors’ money.

What we did

With experience of many similar healthcare bankruptcies, our partner was tasked with investigating the underlying causes and the scope for recovering the investors’ money.

• Were the investors’ funds managed appropriately?
• Was the company truly insolvent and at what point?
• Did the CMS auditors over-estimate damages?
• Have the owners of the business profited unlawfully?
• Are the investors entitled to recoverable funds from the owners, related entities, or the Department?

All relevant financial accounts, records and statements, were reviewed along with supporting documents, internal controls and procedures. This included the allocation of funds between the urine testing side of the business and other healthcare services provided by the same company. CMS sampling methods, results and its extrapolation calculations were also scrutinized.

Outcomes

Our forensic accountant established that the company had unlawfully comingled investors’ funds with other businesses, which had expanded rapidly. In the absence of proper management controls, the company had claimed and received refunds for ineligible repeat testing. The federal agency’s valuation was overstated, but still put the company in a deficit position. The investigation did identify significant funds the investors were entitled to recover, but the business had minimal assets of value and its profits had been consumed by the owners’ extravagant lifestyles. Investors’ only recourse was to pursue the owners personally.