The newspaper asked Mroz to analyze BFA's audited financial statements for the years 1986 through 1996--the last year for which records are available. The newspaper also paid Mroz to look at public records it had gathered pertaining to Dwain Hoover's gift of Colorado land to BFA. And finally, the newspaper retained Mroz to proof numbers related to financial statements in the story to ensure accuracy.
Mroz concluded that BFA's financial condition remains "truly unknown" because the statements provide insufficient detail about BFA's real estate holdings.
Details about real estate that are mentioned in the financial statements "raise concerns" about how BFA values its property and what it is truly worth, he said.
Mroz also focused on BFA's related-party transactions, which he said carry a higher risk for fraud. Related parties, in accounting parlance, include former and current directors and officers and benefactors of a foundation.
Mroz identified "red flags" in the financial statements and public records--points that warrant further investigation. But because New Times does not have subpoena powers to look at bank records and personal income tax records, and because the related parties would not consent to interviews, it was not possible for Mroz to determine whether any fraud did or did not occur.
These are his observations:
* It appears that BFA's level of financial risk has increased because the notes that accompany the most recent financial statement emphasized in far greater detail the "concentration of credit risk" and the "related-party transactions."
* In the 1996 statement, at least 40 percent of the "notes receivable" (money owed to BFA) were held by related parties.
* Related parties appear to be paying off millions of dollars in debts to BFA with assets other than cash. This creates a concern as to the reasonableness of the values assigned to these assets. For example, in the 1996 financial statement, there appears to be an inconsistency in the methods of valuing real estate that was transferred to BFA in exchange for a reduction in notes receivable.
* A gift of Colorado property from Hoover was recorded on BFA's financial statement at an amount that significantly exceeds the value recorded in public records. This raises questions not only about the value of this property, but also about the value of other real estate on BFA's books.
* In the most recent financial statement, interest-bearing liabilities ($335 million) exceed interest-bearing assets ($173 million) two to one. This means that BFA's interest expense (money going out) exceeds interest income (money coming in). To meet interest obligations, BFA relies on other methods of raising cash, such as real-estate-related activities and gifts from benefactors. BFA itself states in its financial statements that reliance on such investments for additional cash is risky.
Overall, Mroz said the financial statements and public records raise serious questions about the true beneficiaries of certain transactions between BFA and the related parties.