In the first of our monthly case studies, we outline a clash of ambition and financial reality, while our panel of experts offer some solutions to the problem

It was the third time this week that the late-night cleaners had arrived at the office before Joe had finished his day's work. He printed out a final draft copy of his financial report for tomorrow's board meeting; there would still be time to tweak it in the morning. He knew it would be crucial not only for the company's future, but also for his own reputation, that he persuade the board to accept his recommendations.

As he headed for his car, he found it hard to believe he had started this job in west Dublin only three months ago.

It had looked like a great career move. Aged 33, and after five years as deputy to the financial director of a medical distribution company, Joe was head-hunted to take charge of the finance department in MediBeo, a well-established company manufacturing heart monitors. He was offered stock options and promised a seat on the board before the end of the year.

At the job interview, he was impressed with the vision of the managing director, Frank, a born salesman who had been the driving force in a management buyout (MBO) in 2002. At that time, MediBeo had been in business 15 years, with a large share of the Irish market in heart monitors. It had also won contracts to supply bio sensors to private hospitals in both the UK and France.

After the MBO, the company was ready to expand. It had a young, dynamic management team with the engineering skills necessary to develop wireless electronic technology.

Cheap bio sensors imported from China were squeezing the profit margins on MediBeo's traditional products, explained Frank. But the new generation of monitors it was developing were the best around and guaranteed the company's future, he said. Both the Health Service Executive (HSE) here and Britain's National Health Service (NHS) had shown keen interest because medical staff would be able to use the new products to monitor patients remotely. This would release hospital beds and reduce the risk of infection for patients.

But just days into the job, Joe found that the company's balance sheet did not reflect the true state of its finances. Almost every figure seemed inaccurate and needed further investigation. For his first two monthly board meetings, Joe had been unable to produce management accounts. He told the seven directors that his revision of the financial department was ongoing and he could not present the accounts until it was finished.

"We always had our accounts three days before each board meeting," grumbled one director. And even Frank, who had championed his appointment, seemed to be getting impatient with him. It was clear that, up to now, the board's focus had been on new products and sales, with the finance department well down the pecking order.

Joe had met with Mike, the previous accountant, three times in the past fortnight and he was surprised how open Mike was about what he called his "accounting estimates".

Joe had tactfully described them to Frank as "accounting irregularities". The first warning sign had been the debtors' ledger with blue chip accounts well over their payment terms.

It soon became clear that products shipped on a trial or sale-or-return basis had been booked as sales and the invoices discounted with the bank. It had been difficult for Joe to reconcile the creditors' ledger and he found that purchase invoices had been suppressed and entered months after the relevant stocks had been booked. The inter-company accounts had also been forced to agree, concealing the fact that the overseas trading was, at best, break-even.

Mike had admitted that he had been out of his depth and had used estimates to meet board deadlines and expectations.

When the cash squeeze arrived he "had moved a few invoices around", he said, to keep the company's head above water.

"What about the auditors?" Joe asked. "No problem with them," said Mike cheerfully. "A new team of inexperienced graduates came in every year and they'd accept anything they were told. The partner arrived once a year for the customary one-hour review and lunch."

Mike added that he hadn't been too worried about temporarily juggling the books as he was sure that when sales of the new products kicked in, the increased business and improved profits would correct everything.

The trouble was, the company's new range was at least six months behind target. While two of the five new products were almost ready for production and had significant advance orders, the others were still at an early stage of development.

Meanwhile, Joe had discovered that R&D costs had been spread through the accounts under a number of different headings.

Also, the company's standard costs had not been updated for more than two years, so Joe had no idea how accurate his estimate of production costs for products sold was.

He believed that the gross margin was at least 10 per cent less than had been previously reported and stock valuations were way out.

The production manager, Brian, who seemed wary of Joe's arrival, admitted after a few weeks that he was battling with some of the suppliers.

It was clear he was getting the receptionist to intercept all his phone calls, so he could avoid talking to people who were losing their patience over unpaid invoices. He needed to delay payments to keep his production line running.

But the outlook was not all gloomy. There was still strong demand for the company's core products and it had an excellent relationship with its largest customer - a firm in Birmingham accounting for almost 25 per cent of MediBeo's sales and with a fixed contract to supply the NHS with bio sensors.

Driving home, Joe wondered how the board would receive his restated balance sheet tomorrow. He would still not have full management accounts because he had been unable to determine what periods the accounting adjustments affected.

But he had spent a lot of time on his recommendations and, in particular, the approach the company should take with its bankers and main creditors over what he called the "rescue period". He knew it was also important to stress the positive aspects, or he would lose Frank's confidence in him.

The MBO team may not have understood the importance of accounting controls and standards but they were passionate about their products, had developed excellent relationships with their customers and had a loyal workforce.

MediBeo was certainly going to need all of that goodwill over the coming months if the company was going regain a secure financial footing.

What should Joe be recommending