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Marshall School of Business
University of Southern California
Atlanta Home Loan
Teaching Note
Purpose of Case
This case was written as an example of an extreme control failure. It can be used in a class
focused on management control, entrepreneurship, or management of small businesses.
Al Fiorini, the manager of a small, but reasonably successful, mortgage lending company in
Atlanta hired managers to run his business while he went back to school, for his executive
Suggested Assignment Questions
1. Identify the devices (controls) that Al Fiorini used to control his business both before and
2. What went wrong? Did Al use the wrong types of controls? Did he use the right types of
controls but fail to design or implement them properly? Or was he just unlucky?
3. What should Al do now? Why?
P
rofessors Kenneth A. Merchant and Wim A. Van der Stede wrote this teaching note as an aid to instructors using the Private
F
itness, Inc. case.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
87
Case Analysis
These are among the questions that the instructor can use to stimulate the in-class discussion:
1. How would you describe the Atlanta Home Loan (AHL) control system at the time Al
Fiorini left for California?
Table TN-1
Types of controls used by Al Fiorini
Results controls Action controls Personnel/cultural
controls
Withhold authority to write
checks
Personal judgments about
people
Monitoring of behaviors.
Examples shown below.
Background checks
Pay for performance:
- loan officers
- Joes 50/50 profit sharing
Examples of Als monitoring of behaviors:
Joes attendance.
He had all office mail forwarded to him in California.
He monitored the status of loan applications submitted to lenders electronically.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
88
Loan officers:
Lead-to-loan application ratio. The range was 520%, depending on the experience of
the loan officer.
In the end, Al also used the ultimate control-problem avoidance approachhe shut the
company down!
2. What caused the companys problems? Were they failures in the companys strategy
or control system, or both?
3. Is it possible that Al Fiorinis control system was good but that he was just unlucky?
4. What did Al do wrong?
With hindsight, it is clear that Al made a number of mistakes:
a. He trusted people who should not have been trusted. He did not know his people well
enough before he left for California. (Note, loan officers are not licensed in Georgia as
they are in many other states, including California.) Could he have done better
background checks? Would it have helped if he had started earlier to find a manager or
partner to run AHL in his absence? But can personnel controls, by themselves, ever be
completely reliable? Could Al have moved major portions of the loan process with him
to California?
b. He trusted the banks to fulfill their responsibilities. Bank of America (BofA) should not
have allowed Wilbur to release the stop payments on the checks. Citizens Bank & Trust
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
89
Wilbur was clearly dishonest, and he eventually colluded with Leticia. Al relied on
legal controls, which were evaded.
d. The set of action controls was incomplete. Al should have gotten legal assistance
earlier, instead of doing some things himself, probably starting with the partnership
agreement. Perhaps Al needed a more elaborate set of policies and procedures, such as:
i. Dont take files home.
ii. Work at the office every day.
iii. Document your work.
But how can these action controls be enforced?
5. Were Wilbur and Leticia crooks, or were they basically good people who were
tempted to go bad by a weak control system?
In defense of Wilbur and Leticia, there was no evidence of prior problems. Leticia, in
particular, had been loyal to Al. Maybe she was corrupted by Wilbur. But what eventually
6. What should Al do now?
Al must address two questions: (1) Should he fight for the business or just give it up? (2)
Should he attempt to punish the crooks or just walk away? If a vote is taken, these questions
will split the class.
The company is not worth much now, and the lawsuits are expensive to pursue. But it is
tough to walk away from a business that had promise. Further, it is natural to have a revenge
motive, to punish the crooks through criminal and/or civil cases. Al suffered major losses.
He lost his AHL business, which he valued at $600,000. He was unable to maintain his
mortgage payments, so he lost his home in Georgia.
In reality, Al did fight back.
He withdrew the license issued by the Georgia Department of Banking and Finance to
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
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Pedagogy
This case is quite easy to teach. The case itself is not difficult to read and understand, and most
students find the situation inherently interesting. Thus, student preparation is generally good,
