Atlanta Home Loan A1 Fiorini, the founder of Atlanta Home Limited – a mortgage lending and financing company was successful in its business in Atlanta maintaining less than 30% fallout ratio (the proportion of loans submitted to processing that were not funded) where industries standard fallout ratio was 30%. A1 hired managers to run his business while he went back to school, for his executive MBA, in California and he hired them without any background check. He did his best to monitor the companys operations while 2,500 miles away.
But the managers not only stole from A1, they stole his entire business. This was occurred due to inadequate and inefficient management control system. A1 enlisted the services of a business broker who placed a value of $600,000 of the company. Moreover, in August, 2002 AHL had 90 loan applications in the process With potential revenue of $300,000. A1 appointed Joe as a partner without conducting any background check. As Joe described himself as “dependable and honest” and had an impressive by background and erformance, A1 trusted him.
A1 ought to find out why he was not with his old job. He knew this person for only about two months. Moreover, he did not know the entire people of the company well enough before he left for California. On top of that, in spite of consecutive absences and suspicious activities of Joe, A1 gave Joe a chance to be a partner for the second time. For, Wilbur’s occasion once again A1 did the same mistake. Without checking Wilbur’s background A1 rendered the responsibility on his shoulder.
A1 signed written partnership and licensing agreement with Wilbur where A1 offered Wilbur the use and privileges of AHL until he returned. Wilbur was clearly dishonest, and A1 relied on legal controls, which were evaded by Wilbur. However, the poor management control also reflects, when Wilber wrote checks to himself and Letitia, which he was not supposed to be, A1’s physical presence was necessary at that time to detect the fraudulent. A1 should have gotten legal assistance before doing any action by himself specially before signing partnership agreement.
Perhaps A1 needed a more elaborate set of policies and procedures, such as: policy not to take files home, procedure to document every office work, work at the office every day, clear direction, not to show-up his personal limitations etc. But it was hard to implement since the person in charge is dishonest and the owner is 2,500 miles away. Chapter 1 focused on all the tools and techniques that establish an effective and efficient management control system.