John M. Collard, of Strategic Management Partners Inc. believes Network Technology Group could have been saved if only the alleged accounting irregularities had been uncovered earlier.

John M. Collard, a turn-around specialist who runs Strategic Management Partners Inc., stepped onto the job at Network Technology Group Inc. on July 1 and began catching alleged fraudulent accounting on his first day.

The findings caused the firm to collapse and led to a federal investigation and fraud indictments for four former top executives. It also led to an interesting look at how a company fell after allegedly cooking its books.

Collard often says he could have saved the company had he only been hired sooner.

“Given a fair shake, this would have been a profitable company,” Collard said.

When he started, there were three investors willing to pump more money into the ailing company or buy it, Collard said.

But the accounting tricks had progressed too far when Collard stepped in, he said.

NTG’s books had been inflated by more than $2 million when it collapsed, according to indictment documents.

No one would touch NTG after the alleged fraud was revealed, Collard said.

The telecommunications construction and installation company was scrapped in auction last summer. About 125 employees lost two to three weeks of pay, a month of covered health benefits and $35,000 in misappropriated 401(k) contributions. Investors and creditors lost millions.

At the heart of the alleged bookkeeping fraud was the need for money. NTG didn’t get paid for its work of laying high-speed cables and rewiring businesses until after it started it, but capital was required to begin the work, Collard explained.

That is where Mercantile-Safe Deposit and Trust Co. came in — signing on as the company’s primary creditor.

For each work contract NTG could produce, the bank would lend the company 80 percent of the agreed-upon price for 90 days. In return when NTG was paid for its work, it was to pay back the bank first. Under the agreement, NTG could borrow up to $3.5 million.

The problems began when NTG started getting larger jobs with local governments, Collard said.

Such contracts required bonds, he said. The bonding was a type of insurance that would pay for the work to get done if the company collapsed.

But the bank wouldn’t lend NTG capital on the new contracts since it would be second to get money back after the bonding company in the event of a loan default.

So NTG officials allegedly began using more creative ways to secure needed capital, Collard said.

One way was to post the government contracts as private company jobs that didn’t require bonding — such as the job for Comcast Corp. Under conditions of the line of credit, with a Comcast invoice, NTG could get an advance from Mercantile.

And that Comcast account was where Collard first discovered a problem with a books.

On his first day, Collard discovered NTG’s checking account was overdrawn by $500,000, so he called Comcast — presumably one NTG’s largest debtors allegedly owing more than $2 million — and asked for a payment towards the total bill.

Comcast officials informed Collard the outstanding bill totaled only about one-third of the amount on the books.

Comcast was just the beginning.

After that, Collard started his detective work. Hidden expenses were uncovered, including deflated payables; accounts receivable were inflated for work never done, according to charging documents.

In an apparent last effort to manipulate the books, NTG just didn’t pay the bank back when it was paid, according to the indictment which says the money was shifted instead to a sister company, Network Technology Group LLC.

“The payments were diverted to prevent Mercantile from gaining access to the funds at a time when NTG Inc.’s line of credit with Mercantile was overdrawn,” according to the indictment.

NTG never recovered from the alleged fraud. Collard’s predecessor left in June. The company closed down in July. And last month its top executives were indicted on 10 counts each of bank, mail and wire fraud.

Collard was stunned by what he had found.

“I always know it’s worse than they’re telling me, but I didn’t know how bad,” he said.

Copyright © 2003 The Daily Record. All Rights Reserved.