Fraud Detection for Co-ops and Condos When You suspect Something is Amiss

Criminals like Bernard Madoff and other so-called “white collar” lawbreakers have made headlines recently with their financial double-dealings, but unfortunately, fiscal mismanagement and fraud also happen in co-op and condo communities. The scale is much different obviously, but an apartment is a major investment, and residents of a building trust their board members and managing agents to uphold their fiduciary responsibilities and be good custodians of that investment.

It's vital, therefore, for building administrators to have a sound system of checks and balances in place to keep things transparent and above board in their co-op or condo community's operations. Such a system will alert board members, managing agents and other concerned parties to the possibility that something odd is happening with—or off of—the building’s books. But it’s not always the obvious financial frauds that might be uncovered; dealings of various kinds might be found.

The More Eyes, the Better

"Fraud" doesn't always take a form that board members or others might suspect, which is part of the reason why there are many potential weak spots that can make a building vulnerable to theft and mismanagement. As part of their fiduciary responsibility, board members also must guard against shady practices that aren’t exactly fraud but which are undesirable and not helpful to the building.

One such shady area involves quid pro quo situations. In return for sending business their way, a person involved with a building’s operations might get something like cash or services from a contractor as a kickback. Such a scheme might involve a property manager overpaying a contractor with building funds, then being given cash by the contractor in exchange for the inflated payment, or having a new deck put on their house in repayment.

“The biggest schemes you encounter are when someone is in cahoots with contractors and getting kickbacks,” says Gerald Marsden, a partner with Manhattan-based accounting firm Eisner and Lubin LLP. “The other [scheme] is when someone is writing ‘play’ checks to themselves.”

Read More...

Related Articles

Financial Oversight, Checks & Balances

Who Holds the Purse Strings?

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 Accounting

Dealing with Fraud in Your Building

Keeping the Lines Open

The Importance of Good Communication

Appropriate Use of Common Funds

Handling Other People’s Money

 

56 Comments

  • Is it fraud if the board institutes major projects without the approval of the majority of unit owners. Is it fraud if the president uses condo funds to have trees planted outside her door on the sidewalk without a permit because she wants to. Is it fraud if she enlarges and has imported tile installed without the approval of the unit owners. Is it fraud if she puts in cameras in the common back yard area overlooking all the patios, without approval of the unit owners.
  • Jan, it sounds pretty bad to me but I think that if the board went along with it, then they are considered to represent the unit owners. That's co-op "democracy".
  • lafayette park condo. board members tried to block 2 owners including me to check 54 records and they have tols us that it will cost 400 dollars . we paid for it , and guess what ? they total charges that the board member and management spent from the funds was 10,000 dollars. so basically i paid 400 dollars and the management office paid 10,000 to the management company CMC and the lawyer . any sense ??!!!
  • the board collected moneyfor project A. they took the money and used for it for something else. the board wants to collect more money for project A. can they do that?
  • Arnaud, we live in a condominium complex, not a cooperative. Our by-laws and rules are different. A board can be sued for willful misconduct and abuse of power. We are individual owners and we did not have a vote on any of the projects they instituted. They are thieves.
  • I have a condo whose inside wall has mold due to an outside hole on the wall. The condo manager said that they would fix it but that the assoc. did not have the money. The assoc. never has any money!
  • A condo owner on my building, added an extra room to her condo in our common basement, now the basement is getting smaller and her condo is getting bigger.Is it fraud or theft to the member association? What can we do? She has been adding space to her condo for a long time. Where do we go for legal help?
  • frustrated condo owner on Saturday, May 14, 2011 4:25 PM
    whom should I contact if I suspect fraud of the board, the building management company and it's employees? I am in Chicago, and many told me this is just Chicago style.
  • Mnagement company and Codoboard refuses to do repairs from work order prior to Master Deed Changes. Civil Rights, refuses to acknowledge that there is retailiation and other discrimination of a ongoing nature. I can't get any work orders done
  • Monthly condo assessments on time, sent certified mail, but keep duplicating with late fees following months. And balance forwards swallow them eventually, so one does not know what is going on.
  • frustrated NYC condo owner on Monday, April 23, 2012 12:31 PM
    Can a building manager/board of directors fine shareholders for a building infraction that they (building manager/board of directors) originally approved? Building law11 was then passed. BM/BOD advised shareholders to remove flower boxes. SH were given 5 days or get fined. Some flower boxes had mourning doves nesting. based on fed law you can disturb a migratory bird nest. Infraction was corrected before buidling inspection, so fine was never given to the building. is shareholder still responsible for fine, if so what are they responsible to pay? part of the fine or what ever the MB/BOD deem is the fine? Thank you for your help
  • The board says we owe over 60,000 in property taxes and the and over 25,000 in oil and we now have to pay an increase monthly of over $200 or we will loose the building. They dont itemize the expense annuall expense reports and it is very vague and unclear ? What rights do i have as a shareholder to have an itemized list of expenses for the building.
  • Enraged NYC Coop Owner on Tuesday, August 14, 2012 1:45 AM
    To make a long story short, For the past 10 yrs, the board and mngt co have done nothing but give us trouble, accusing and judging me guildty of something I never did, just because "it came to our attention that...". The best part is tell me about this for the first time when I've already been charged guiltly. Then a few menaces. They always send all the paperwork to my dad. this time though, they coincidentally put it in my mailox after I was gone for 2 months. The letter said we didn't pay the very first 2 months of maintenance, and that if we don't pay it immediately, the apt will be sold in an auction. If we had not fought, they would have taken our apt! There's was also a flyers once that said: "THIS IS YOUR TRASH. PLEASE DESPOSE (error left on purpose) OF IT IN A GARBAGE BAG IN YOUR APARTMENT. Being the closest apt to the staircase, no one in the building could have missed it. Next to the anonymous, there was a pile of letters, none of which were addressed to me. Now everytime there is a leak, it is immediately my fault. Is any of this legit? Thanks
  • helpless shareholder on Tuesday, August 14, 2012 12:36 PM
    The President self managed the building for 3 years on her own with no board never having meetings,She finally gave it the bldg to an outside management who resigned after 1year , Recently we found out that the President withdrew funds from the bldg accts with the debit card within 2 1/2 years she took over 20k in cash and issued chks for her son over 14k desription says paperwork and phone calls on his checks and on top of that she's fighting to be President again , What can we do she';s defaulted in her proprietory lease we want her out of the bldg , Her family has become Irrate and wants to get physical has threaten my family members because I found out about them taking the money what can I do
  • Call authorities and the attorney generals office. They will get involved immediately. Protect yourself.
  • My condo's management co. and some board members have done some unusual things in our condo with the help of the condo lawyer.. The last thing that I am still trying to get the original paperwork on was an insurance claim that was submitted to the condo's insurance in 2011 for a great deal of water damage done in my kitchen which destroyed almost the whole kitchen. Right from the beginning, the condo manager put in the wrong claim which was refused. For some reason, the agent from the insurance company even had another adjustor visit my condo and that other adjustor supposedly denied the claim which the adgent informed me of in an email. . I called the female adjustors on the phone and only after speaking to these adjustors on the phone, the managemenjt co. offered me about 1/4 of amount I believe the claim should be for. They still will not show me the origjnal paperwork that the insurance companies send out with the check to cover a claim. They keep on saying that the unsigned estimate is the only thing they have which I do not believe. I even wrote the president of this insurance company but she had an attorney write back to me and he is again showing me an unsigned estimate which cannot be a legal document. Sadly, I think some insurance company employees may be involved as I am positive that 2 lied that the claim was denied when I have a copy of a check that the management company is saying was meant to cover my claim. No one in the insurancew company will tell me what the amount of the claim is, therefore, I am very suspicious of those employees as any honest insurance company would want a 69 year old retired person to get the full amount of the claim. I believe by insurance companies making out the check to the maqnagement company or the association is just looking for corruption to take palce and i am not sure if this is done or our management company has found a way to get this done. Employees of this insurance company may be involved and I am not talking about agents only but possibly some of the higher ups including some legal people. I am saying this because the claim was refused one day and a week later II was offered $5,000 if I wouldn't hold the association responsible. . What makes me very suspicious also is that the condo attorney made a notation on the back of the check saying that if I signed this check I would not hold the association responsible for any more money. I don't believe this condo lawyer should be doing this since our association is not self insured. If there was a cap on this claim, it would be up to the insurance company to state and not the condo attorney. I would never hold the association responsible for repairs but I would expect them to help me to get more money to cover the repairs if the $5,000 is not sufficient and I know it is not. Cam uou give me any advise. By the way you have only heard a tiny bit of what has occurred here. I have enough to write a book or even a newspaper article if anyone is interested. This horrible treatment of the condo owners by the mnanagement company has to stop
  • I am a condo owner.I believe my super was paid a huge kickback on a contracting job.how can I compel the company that did the job to submit to an audit
  • We have recently gone from selfmanagement to hiring a smal management company to handle our affairs. They promised monthly reports and now they are not forthcoing. I have asked several times for the bank statement copies and they still are not complying. I'm starting to worry alot. What should we do?
  • Con as president, Management 'Dirty' on Tuesday, January 01, 2013 8:18 PM
    We've had the same board leadership for years. Even being on the board, I have no idea of what is occurring- But have no question there is something going on. The president was arrested for forgery and theft by swindle, from the PROPERTY MANAGEMENT FIRM he worked for- he declared bankruptcy protection from literally dozens of creditors, he has civil judgements for gross PROPERTY MISMANAGEMENT- Yet, he's exceptional at using the system and is extremely likeable, even after hundreds of thousands aren't really explainable- And the worst is the actual management company is in 'cahoots', they erroneously sent an e-mail to the rest of board that was only intended for the president. As they control everything, there's nothing we can do.
  • I believe my board and management have both acted to defraud my coperative. Our financial statements come a year late... a budget is so out of wack...two boilers changed in the middle of winter....on the opposite sides of the street.Both could not have gone at the same time)...and they could have been maintained until spring, .. assessments like crazy with no explanation...and a request to inspect books and records is disregarded. What options do I have to see what is going on? I am a shareholder and have a management background. Woud I have to get a lawyer and pay the legal fees on my own? Does the cooperative Corporation have an liability to refund legal fees?
  • Has anyone ever heard of a case in which a co-op board member manages to steal the shares of a tenant who had lost his stock and lease? Someone told me that this happened to him, but I find it hard to believe.
  • Please tell me who to contact for the following situation. My neighbor has a dispute with out condo association. She wrote them requesting information concerning her payments. Instead they sent her a copy of my payments and five other condo unit owners. They released my checking account information to this woman, obviously by accident. Our property management company is paid approx. $750,000. a year and run it like amateur hour.The owner who received my information sent me a copy of my checks with a letter of explanation. Please tell me what legal action I am able to take. Linda
  • A coop apt is a home to a family however it does not have any homeownership rights.The class most target is the one with NO MORTGAGE. They can be evicted in housing court. We have no protection in Bankarutcy court. We are second class citezens. we need to change the laws. check COOPABUSE.COM and register to be part of the COOP REFORM MOVEMENT. IT IS OUR HOME AND WE NEED PROTECTION UNDER THE LAW AND THE ABUSER PROSECUTED.
  • Has anyome had a situaion of Board President is dating the association manager?? Her unit is spotless and is repaired while the rest is going down with no help of repairs except being put off. We are the second highest in our county and have nothing extra to explain it like a clubhouse, pool, etc. Any advice out there on how we go about removing the involved??
  • I think my managment firm at my condo is taking kick backs from contractors. She offered us an alarm company for work too refinish our wooden deck for 10,000 however I was on the board at the time and found a real deck company approved by BBB and they did the job for 5,000. After the deck company met with the property manager the price went up to 5,900
  • I received a letter from condo Mangement telling me I would be fined if I did not clean my flower beds. How do I know if it came from management co if it was not signed. It was on there letter head but is it legal to threaten me that way
  • I believe 2 of my association board members gave false information to the insurance company providing our master policy-what are the implications to owners and board members just made aware of this ?
  • I own a condo unit. I had a water leak from my water heater, I called my insurance tripple a, I filed for a claim, knowing that, they are the best and honest, they sent their contract company and i signed the paper knowing that they are responsible for it. after couple of days I found out they denied my claim , and they charged me too much for the service they provided. I could have called somebody cheaper. They are pointing my primary is the home owners association insurance.I have to pay every thing out of my pocket, both are denying my claim. So sad with my hard earned money will just go in to the drain.
  • i own a condo unit living on forth floor. above me terrace of fifth floor,owner put storage. is it allowed to put without my permission?
  • building dept filing of large project & dollars are different than Board notes and tax filing by $250,000 capital project per auditors 2013 filed taxes. Your comment ? Fraud /kickback?
  • I am the Secretary on the Bosrd of my condo. Our annual audit was just completed. The Treasurer stated that the management letter should not be on the agenda for the open Bosrd meeting, but should be discussed in Executive Session only. Is this.best practice?
  • Who do you c tact when your condo board has no financial records of who did or did not pay common fees?
  • Brookline condo owner on Friday, May 30, 2014 7:51 AM
    Dannin management of Brookline is practicing this for years. I tried alerting the city and state ... No reaction. Where else can I turn to?
  • Hi, I own a condo unit in nyc. Our president of HOA is doing things that are not supported by-law. Recently, floor in a common area was redone but the construction guy who did the work found a tiny tiny chipped spot which was not even visible unless you really look very closely. Regardless how much damage it is and who made that damage, it should be maintained by common charge as per by-law. However, this president charged penalty of $100 to three unit owners who uses the common area; maintenance people also have access to this area and comes by often for routine maintenance. I have sent letters to address this issue along with copies of by- law indicating common area is not each owner's responsibility. However, this president is not logical and refused to remove the fine. I spoke with vp of the board who disagrees with the president but he said he can't change the president's decision and suggested to speak to her. I have communicated with president, vp, maintenance company so many times but answer is always the same "it is her decision, no one else can do anything about it but her" Now the fine became $250 due to late fees for the last few months. I cannot afford an attorney to fight for $250. But it is not fair and it is not right to be fined without violating any rule addressed in by-law. I also take this as a discriminatory action as the president made only three units to be subjected to this her personal regulation. Two of the three units are Korean and one unit is hispanic. There is no answer why we are the only ones targeted and fined. No one actually check other common areas to apply this illogical practice. I need advice. Please help me.
  • Who do you go to when you suspect fraud and 3 of the 5 Board members, the property manager and our Association's attorney are all in it together? FDLE, Attorney General, or the local police (who I don't think would have enough knowledge about fraud condo associations.) It's proof positive that association funds are being mishandled.
  • While going through an on going loan mod with bank after paying 12 yrs of mort/ while waiting for the procees and waiting for the recalculation of new payments we didn't pay and were tokd the loan would be backended, we trusted and gave every bit od info asked for. almost 2 years and still being asked for more ifrom the bank we trusted. we recently got legal letters of forclosure and my apt was sold at auction(or so I hear)..whomever wasnot in any time frame to do so..Fraud u think.a family in need of help and abvice, My Child does not understand and his schoolwork is suffering..Help please
  • Is there office charged with investigating management companies suspected of fraud ?
  • Three members of my HOA Board are stealing irrigation water & lawn maintenance by tapping into the HOA water meters & demanding the landscaper for the common areas also maintain their yards.
  • Property manager and some board members have created financial fraud and refuse to open books to an audit.. special assessments now total over $2Million for work that was not "mandatory"... who in Illinois do we contact to open an investigation in to this management company
  • One of my co-op's Financials (utility bills) are inflated. I know this because I work in billing for the same utility company. Does this constitute fraud?
  • There is so much corruption in NYC ! All the co-op and condo owners pay the price. The problem is too many people look the other way or indirectly participate in the corruption. For example, you want to hire a contractor, you have to get an application to get approval, you wait and wait then someone will suggest using someone from your building. The building's insurance does not cover this contractor but is a friend of the super. The super gets his cut, you get you renovation done no hassel. Well, you just participated in corruption. If the shareholders or owners don't question it, then eventually they will find out the hard way, that they have broken a code. It takes many years for the truth to come out. It costs so much money to get anything done in NYC due to corruption and the cost is passed on to the consumer. The co-op shareholder that don;t follow the rules of the co-op and take a short cut ( becuase all they care about is what they want) ruin a perfectly good community of people that care about themelves and also their fellow neighbors. No one talks about it but everyone knows it is there
  • It cannot be an "I" thing; there is strength in numbers. Get enough owners on board who are in good standing and committed. Create a hostile takeover (signatures), or things will never change.
  • Frustrated Condo Owner on Tuesday, April 14, 2015 1:36 PM
    I’m a condo owner in Brooklyn and I have been trying to get a refinance on my mortgage and everything is completed except for documents requested from the management company, who is also the sponsor for the building. The documents are a simple questionnaire and the annual budget but the sponsor who is in charge of the management company refused to answer my phone calls, texts, and e-mails in regards to this matter. My loan officer from the bank has also reached out to him numerous times to request these document but he never return any calls or emails. This has been dragged out for the past 5 months and it has caused me to lose out on a lower interested rate and a lot of time wasted. I have also been paying my maintenance fee but have never received any annual budget or any information on where and what the money has been used for. Is it fraud and/or unethical for the management company to do this? What legal action, if any, I can take against him and the company? Please help!
  • In NY you need monet. With money you can afford a good lawyer. With a good lawyer you can sue. If we all sued, the transgressions would occur less frequently.
  • THE ANSWER IS stop whinning STAND UP go to court the only answer that counts is the Judge's. Stop saying mommy he stole my lollipop.
  • I am positive that our President of the board is doing major fraud I have the documents to prove this and pictures. Running our historical building into the ground while making profits off vacation rentals and internet scheme. They have free cable while we been having to pay for our cable.
  • I live in a single family home with an HOA. Twice I have caught them (HOA member and landscaper) connecting their own hose to my water bib to water common areas. Is this legal? I pay for my own water bill. I'd also like to add I live in California where we're in a drought right now and being restricted and penalized.
  • Defrauded in Illinois on Friday, May 22, 2015 10:55 AM
    The property manager and board at my condo complex defrauded their insurance company of $4,500 and did not fix the destruction to my kitchen for a pipe burst the association is responsible for. The association carries insurance to cover replacement of all customary permanent items in a condo, such as appliances, countertops, cabinets, flooring, as well as betterments and improvements, through Nationwide Insurance. After the pipe burst, the property manager and board told me that the association's insurance would not cover internal damage to my unit., so I filed a claim with my homeowners insurance company, State Farm, and had the repairs done. I then discovered that the associations insurance did cover these items, and that the association had received $4,500 from Nationwide for damages to my unit that it did not repair and pocketed that money. This is not theoretical. I and the board have copies of the Nationwide report showing that the association was paid this money for repairs to my unit that it did not perform. These specific repairs were performed by contractors I hired and paid from the proceeds of my State Farm claim. The board is covering this up and trying to keep the $4,500, as is the property manager. Its just pure insurance fraud and greed. The association turned a profit on my hardship and also left me with out of pocket expenses and the loss of my insurance deductible, which I should not have had to pay. I should not have had to file a claim with State Farm. I wish I could say It is not just the prop. manager, but the board is trying to keep this money. It has been clearly brought to their attention and they are stonewalling. They went as far as to motion to stop a board meeting during the homeowner forum where questions about this insurance claim were raised. The question now is where is the $4,500 they got from Nationwide? Did the prop. management company take it? Did the association take it? Did the board take it? They are covering up where the cash is right now, but it is clear from the paper trail that the $4,500 was paid to the association by check, and one or all of these parties has this $4,500. They are circling the wagons in order to hide who has it and keep this money obtained through insurance fraud.
  • We just reinstituted our HOA for our condos after almost 20 yrs of none. A woman who identified as a resident and homeowner basically elected herself president. It turns out now she is not a resident but rents both her units out. this is in hudson county nj. She misrepresented herself. is this grounds for removal? No quorums at meeting there are 40 units. They "pass" rules and bylaws with 5 people present. she and the secy own 3 units. Is this legal?
  • I suspect fraud in the FL condo bldg I live in by the board. We are in the midst of a 40 year accessment for $5million and every item is way over budget for example. Replace tile floors in hallway budgeted at $400,000 current cost $850,000 with I board member taking complete control of projects and no transparancy on why the increases.. Who do I call, police or lawyer and is there any way to have assc cover legal fees?
  • I feel for all these victims on here. I know our condos have been defrauded but it's so hard to prove. Last year our previous property- managing company was raided by the FBI. That company(actually one bad apple in the company) had defrauded customers of hundreds of thousands of dollars. It was turned over to the DA of NM and when I asked them on two different occasions the details, etc. they don't even return my calls.
  • We are a 10 whse building with 5 owners. Presently we have a management company handling affairs and I am a member of the board. Can the 5 owners get together n decide to run building operations thus saving ourselves the extra expense by firing management co? If so do we need papers drawn by a lawyer to that effect n some sort of personal insurance?
  • Nobody's comments are being responded to on this comment form, yet so many people have problems with boards and fraud...in our case, embezzlement. I can't find any information on the internet about what to do in California if a board member is embezzling, actually the board president. There are no co-signers on any checks, and she gets kickbacks galore from contractors, uses the association's credit card for personal expenses, and the list goes on. The state atty gen is too busy to deal with just one HOA. So where do homeowners go when they need a forensic audit?
  • I would like to ask you for an advice how can I contact county Inspector or anybody who can make investigation in Condominium Association of Aventura Fl, Miami Dade County. . We are sure that it is big fraud in our community. I appreciate very much your answer and advice. Thank you, Henry.
  • I live in a manufactured home co-op and earlier in the year we switched property management companies. At first it was that they lost a check, guess that can happen, then a few months later a group of us received eviction/demand for rent and were served by the sheriffs office. I set up a payment arrangement and have stuck by it for the last three months, Then another check went missing. Long story short when I called the management company and asked for a copy of my account and what I have paid in I was told it was sent to the co-op's lawyer and I would have to contact him to obtain it. I told the woman on the phone " Um no. This is my account and I am asking you for a copy of what I have paid in including arrears." She told me she would email it to me. I told her I wanted a hard copy. I received an email copy from the attorney. When I read the ledger I found that even though there were months that the check was picked up prior to the 5th of the month they were not being creditied to my account until after the 15th and an automatic $25.00 fee was being added. To me this seems very odd. Is it a normal practice?
  • The management company in my condo has my financial record all wrong and is it won't corrected.