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.”