Case Study Archive
Case StudiesCase Study ABC Day Camp
ABC Day Camp is owned by two brothers Cane and Abel. Eve, Cane’s wife, has hired us to appraise her husband’s interest in the camp in connection with their matrimonial action. Before the couple began the divorce action, Eve worked as an office manager at the camp. She has some knowledge of its operations and financial affairs.
To perform our valuation, we were provided with the customary financial records consistent with our standard document request. These items include, but are not limited to:
- Corporate tax returns for the five years preceding the action.
- Cane’s and Eve’s joint individual income tax returns for the five years preceding the action,
- Detailed general ledger for the five years preceding the action, and
- Copies of each parties Net Worth Statements.
We toured the camp and interviewed Cane, while accompanied by his attorney. While performing a lifestyle analysis we determined that the couple lives in a fashion way above their means. In other words, the couple spends an excessive amount of money when compared to their reported income.. During our analysis we observed the following:
- The couple made numerous and expensive improvements to the marital home.
- They frequently went on exclusive vacations.
- Cane, Eve and their college age children all drove expensive cars.
- Eve frequently shopped at the finest stores, using only cash to pay for her purchases.
- The couple often dined at fancy restaurants.
When discussing our findings with Eve, we suggested performing a forensic analysis to verify the income stream produced by the day camp. We informed Eve and her attorney that we could not guarantee that we would find a "smoking gun", but there appears to be a significant discrepancy.
Upon completion of our forensic analysis, the following narrative was included within our valuation report:
In the course of the engagement it had been discovered that gross revenues have been significantly under-reported. Gross revenues have been reconciled based upon the examination before trial (EBT) testimony of Cane, as well as information provided by Eve. Within the exhibits of this report, we have prepared an analysis, which re-states the actual gross revenue(s) of the business. Gross revenues were calculated based upon the number of campers/students attending the facility. These figures were determined for the day camp, travel program and nursery school. Total campers were determined using three different methods:
- By number of buses used.
- By number of camper groups; and
- By grand totals from the camps database report.
The average number of campers computed was 1,117. EBT testimony indicated that there were over 1,000 campers. The calculated number of campers/students was then multiplied by the published current tuition charges. At the time this report is being prepared, Cane has not made available the tuition charges for the years analyzed. As such, gross revenues have been calculated and adjusted by 2.0% in each analyzed year. Within the exhibits of this report we have included our computation of re-stated gross revenue.
This adjustment was applied to determine the normalized income stream of the camp, which ultimately materially increased the value of the business.
After testifying to our findings, Cane and Eve settled their divorce without further assistance from the court.
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