This section of the Report addresses the period of time from the issuance of the $4.0 million general obligation judgment bonds in October 1985 through Judge Dunn's decision to appoint a Receiver on December 3, 1986. Ecorse's financial condition at the inception of the receivership and continued cash flow pressures, failures of management to address spending patterns and lack of accurate financial information are also discussed.

The condition of the accounting records up through the Receiver's appointment prevents any accurate assessment of the actual fiscal distress at December 3, 1986. As a second consideration, the errors discovered in the audited financial statements as of June 30, 1986 were substantial and it was difficult to correct the 1986 amounts in 1987. Attempts by Ernst & Whinney (now Ernst & Young), who was appointed by the Receiver in early January 1986, to prepare a balance sheet at December 31, 1986 proved unsuccessful.

Accordingly, in an effort to assess the financial condition as of the Receiver's appointment, financial information prepared in connection with this Report is based upon estimates. The revised audited financial statements as of June 30, 1986 and for the year then ended and the 1987 audited financial statements have been used as indicators of the fiscal distress as of December 3, 1986. Often, estimated December 31, 1986 balances were used as it represents the half-way point in the fiscal year. In addition, the Receiver's budget message was based upon the January 1, 1987 through June 30, 1987 period.