Forensic Accounting Dealing with Fraud in Your Building

Recently, have you noticed that your managing agent has exchanged his old Toyota for a new Mercedes? Has he installed a new addition to his house? Has he appeared erratic...and returning from jaunts to Atlantic City all the time? If so, it might be time to check the building’s books and records for suspicious activity and possible fraud. Either your manager just won the lottery and decided to keep his job...or these are signs of fraud. 

Thankfully, there are fewer cases of co-op and condo fraud today than there were in bygone (but not so bygone) days, like in 1994, when 82 managing agents and four management firms were indicted in kickback investigations. Or in 1999, when 59 individuals and 21 management companies were indicted. 

Still, even today, there are enough instances of fraud to keep busy forensic accountants, real estate attorneys, and district attorneys. Doubtlessly, gross mismanagement or fraud—when it happens to your corporation or association—is apt to wreak havoc with community finances.

Types of Fraud

Most cases of fraud or gross negligence involve mismanagement of the corporation’s cash. “The property management company might divert funds to pay for purposes not specific to the building or association they are managing,” notes Woody Goldstein, senior manager at Mayer CPAs in New York City.  “In one example,” he says, “the management company was using the funds of the building to pay for the building and for their own expenses.”

Attorney Phyllis Weisberg, with the Manhattan-based law firm of Montgomery McCracken Walker & Rhoads, recalls a case in which a management company was supplying the board with copies of bank records that turned out to be entirely different than the actual records of the co-op on file at the bank. “They were running two sets of books,” she said. “Somebody is in jail on that one.”

Read More...

Related Articles

Spotting Financial Irregularities

Red Flags Every Board Member Should Know

Don't Cut Cost Corners

Putting Off Expenses Can Cause Your Building Big Problems

Forensic Audits

Following the Money

Problem Boards

What to Do When Your Board Breaks the Rules

Q&A: Park at Your Own Risk?

Bank on It!

Board Members’ Guide to Money Management

 

3 Comments

  • The October issue was right on point as with all of the newsletters. The Forensic Audit article was very interesting and should be expanded on in the future issues to cover collusion between boards, members, and management. I am a member of a cooperative that over the years has, and continue to suffer great financial loss because of this unholy trinity.
  • The board members have committed a lot of fraud and still continuing to do and the management is involved in this fraud case too.
  • I am convinced that both the board and the MA are having a hay day with our funds. I have lived here 7 years and during the majority of that time one individual was both board president and treasurer. When I questioned this at the annual SH meeting it was met with great hostility! Then when questioning other board members I was told by them they did not have a position, they were just on the board except for one individual who was secretary. Then when our building was refinanced our president/treasurer arranged it through his bank. Again when I questioned the practice I was met with hostility. The shareholders present at the meeting remained silent. He was eventually removed as president and in a conversation with the MA he hasn't see this double duty board member. It is so obvious to anyone who chooses to open their eyes. But instead they like to shoot the messenger and I am now the target of a witch hunt. It is a very unpleasant way to live.