Where the Dollars Are Detecting & Preventing Fraud

 Few things can be as upsetting as discovering that the funds that fuel a co-op  or condo have been mishandled—or worse yet, stolen. For residents, fraud undermines their sense of trust in  the men and women who oversee and manage the place they call home. For managers  and board members, it can breach the trust that exists between each other,  wreaking havoc not only on the bottom line but on the very fiber of the  organization itself.  

 In these days of Bernie Madoff pyramid schemes and the tumult on Wall Street,  knowing how to detect and prevent fraud has become even more important to unit  owners, managers and boards. Responsibility, transparency and accountability  have become the watchwords of financial management, and it’s a sensibility that has made its way to the world of residential housing. “In a difficult economy, you have to watch your assets,” says Stephen Beer, CPA, of Czarnowski & Beer LLP in Manhattan.  

 It’s Happened Before…

 For the co-op and condo industry, the 1990s saw major scandals surrounding  disreputable property managers and vendors involved in kick-back activities and  other fraudulent activities, such as creating bank accounts in the manager's  name, and not that of the building, so that deposits were siphoned off to the  individual rather than the community.  

 That kind of activity and the prosecutions that followed it put boards and  managers on alert. Other headline-grabbing deceits in other industries (such as  the Enron scandal) also prompted new safeguards and activities, including the  Federal Accounting Standards Board. Despite the changes that have occurred,  however, industry experts agree that vigilance is required at all times when it  comes to the financial well-being of co-ops, condos and HOAs.  

 Issues at Hand

 There are two types of fraud, says Mindy Eisenberg Stark, CPA, CFE, of  Scarsdale, New York . There is “on the book” fraud which involves activities such as commingling bank accounts, creating  fictitious vendors, borrowing funds and creating fictitious employees.  

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