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What to Do When You Suspect Financial Fraud: From Step One to Forensic Audit

May 26, 2014

"The first thing to do is to be in touch with your auditor and your attorney," says Mindy Eisenberg Stark, a certified fraud examiner and CPA in private practice. "I think when boards try to do it themselves they get very emotional." 

Call your co-op or condominium's managing agent and ask about the situation to see if there is a legitimate explanation. Go through all the past monthly reports to see if you can figure out what went wrong. "If you don't get your answer, then call your attorney and eventually a forensic accountant," she says. "The worst thing you can do is to create hysteria on the property."

For the First Time in Forensic

A forensic accountant is trained in the latest accounting standards and procedures; he or she usually has legal training or is a lawyer, too, and knowledgeable about current federal and state laws. 

The goal of a forensic audit is to establish the existence of a suspected fraud; determine who committed the fraud and how; calculate the potential losses from the fraud; and gather sufficient documentary evidence to assist the courts and prosecutors in the event of a criminal or civil case. 

Be aware that what your co-op or condo board may think is theft could just be an unintentional management error, not fraud. For example: A management firm's back office pays ABC Condo's water bill with XYZ's account, or forgets to pay one month, or double pays another month. What is important is what the manager does after the mistake is uncovered.

"If he starts hemming and hawing, you need to get a real answer, backed up with documents," says Stark. 


Adapted from "Taking Charge of the Numbers" by Jennifer V. Hughes (Habitat, May 2014)

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