Case Study: Assisted Living Concepts Inc.

Assisted Living Concepts Inc., hereafter referred to as ALC, was a Nevada corporation formed in 1994 with its principal place of business in Menomonee Falls, Wisconsin. ALC provides senior assisted living residences that provides multiple personal services for their residences. The services provided include meals, activities, laundry and support medical services administered through employees or administered by third party parties. ALC was purchased by Extendicare, Inc. in January 2005. As of December 31, 2012 ALC had 211 assisted and independent living residences in 20 states totaling 9,348 units with 4,600 employees. ALC generated revenues in excess of $228 million dollars and a net loss of $26 million dollars for year-end 2012 (Assisted

Buono was a licensed CPA in the state of Wisconsin. Buono was in control of the accounting books and the accounting department personnel who cooked the books. Buono was a willing participant and the executive who could have stopped the scheme that Bebo had implemented to falsify the financials of ALC.
Ventas Realty, LP – A leading real estate investment trust (REIT) based in Chicago, IL. ALC leased eight assisted living facilities from Ventas in January 2008. The Ventas lease specifically provided that it could only be modified in writing with authorizations by both ALC and Ventas. The Ventas leases also included several financial covenants, that if not met by ALC would result in significant financial consequences.
Grant Thornton, LLP – Audit Firm – The sixth largest CPA firm in the United States, based on generated revenue (Statista). Grant Thornton was the audit firm of record for the ALC auditing engagement accounts during the fraud

Bebo devised a plan to record employees in the occupancy reports to avoid default. ALC’s employees were required periodically to travel to the facilities for assignment. In a measure to reduce lodging expenses, the employees would sometimes stay overnight at the ALC facilities. Bebo reached out to ALC’s counsel to see if the employees that stayed at the facilities could be included in the financial covenants that were related to occupancy rates. ALC’s counsel responded that the only way this would be permitted is it was in writing and approved by both ALC and Ventas. Bebo never sought the written authorization required to have the language and covenants amended to include employees of ALC in the occupancy reconciliations.
During the first quarter of 2009, ALC was in violation of the occupancy covenants set forth in the lease agreement. Bebo instructed Buono and the accounting staff to include the employees, as well as non-residents into the covenant calculations (SEC