In the unfortunate and troubling event that you suspect incompetent - or even criminal - behavior regarding your building finances, an accountant or a certified fraud examiner can forensically investigate the issue to determine whether or not mismanagement or possibly criminal wrongdoing is present. The question of whether or not a fully certified fraud examiner should be brought in depends upon the amount of damage, what kind of legal action will be taken, and whether or not losses can be recouped; after that, there remains the task of shoring up your building's defenses against fraud to see that it doesn't happen again.
Although most frauds start out small, most first-time offenders become repeat offenders and leave telltale signs of their actions. While the overwhelming majority of managing agents are ethical, trustworthy professionals with few concerns greater than the welfare of the building communities they oversee, when financial misappropriations occur, they often begin with the agent. This is largely attributable to the confluence of opportunity to commit the act, pressure to commit it, and rationalization for it both before and after the deed is done.
Following suspicion of fraud or mismanagement, the source of the problem must be identified. "It generally [involves] the purchasing of services or supplies, and it's really hard for a board member to detect it," unless the board member is involved on a daily basis, according to Stephen Beer, a partner with Czarnowski & Beer, a Manhattan-based accounting and auditing firm. He recommends reviewing invoices and receipts when something doesn't look right.
Bank reconciliation can also reveal fraud. "That's very detailed, and it's something the treasurer might do, but that's another place where you might see [fraud]"¦ if someone took money out of the accounts," Beer explains. He says that after supply ordering, the areas most subject to theft are accounts that have had money taken out, kickbacks - as was the case in the management scandals of the late 1990's - or inflated prices for goods and services.
According to some in the field of fraud prevention and forensic auditing, sometimes the original glitch is so far removed from the building itself, it's almost impossible to detect through the usual means. For example, if a building super or manager is allotted a certain amount of money with which to order supplies for the building, and instructed to purchase top-of-the-line, grade-A goods, they'll most likely go and do just that. But if the vendor who sold the building representative those goods substitutes substandard product for what was initially ordered - yet still charges the grade-A price - the building has been defrauded, yet no evidence of such will appear on any receipts, and no one will be the wiser unless problems arise because of the shoddy goods. There are two ways fraud of this nature can be detected: first, by educating the people purchasing goods for the building about what it is they're buying and how to tell that it is in fact what they ordered; and second, by having the building itself physically examined by someone with the knowledge and experience to tell top-quality materials, goods, and workmanship from something less.