Condominiums and other similar common-interest developments are often a target for fraud because they represent large pools of money that are funded by recurring and mandatory fees that are paid by each condominium unit owner. More often than not, the unit owners become careless by not monitoring how this money is spent.
Condominium funds can be misappropriated through:
- Embezzlement or theft by a board member, property manager or other decision-maker who has been tasked to manage and allot these funds
- Kickbacks or bribes paid by contractors to one or more of these decision-makers
Condominium Fraud Case Study?
After years of renting, a new condominium unit owner became enamoured and thrilled with the idea off finally owning her own place. She was able to afford the down payment, closing costs, mortgage payments and condominium fees. She liked the view from the terrace, and the overall layout of the unit. In addition, the location of the building and the available amenities were exceptional. However, after a few years, she noticed that her condominium fees were frequently increasing. She also learned from discussions with other condominium owners in her building that several of them had concerns about how contractors were selected and their excessive rates. In some cases, it was even questionable as to whether they were even doing the work that they were hired to do. Although many of the condominium owners had not taken an interest in becoming involved with board elections and decisions, their newfound and collective suspicions piqued their curiosity to fully understand the extend what was actually occurring. This group of concerned unit owners requested disclosure from the condominium board and property manager. Much to their chagrin, the response of the board and property manager was unsatisfactory. It was determine that retaining counsel would be the best course of action, and through this, they retained a forensic accountant to address and resolve these issues.
After making preliminary inquiries with condominium owners, board members and the property manager, the forensic accountant identified four specific projects that were undertaken by the condominium corporation that warranted further review. These projects were selected for review due to their excessive cost or because there were specific allegations raised about them by the unit owners. The forensic accountant performed an in-depth examination of board meeting records, project budgets, invoices, banking records and accounting records related to these four projects. The forensic accountant’s investigation identified some clear patterns that could simply not be ignored. Three projects employed the same two contractors, and there was little or no evidence that a competitive procurement process had been undertaken. Moreover, the expense for these projects far exceeded the initially estimated budget. For two of the projects in particular, the forensic accountant found that the vendors billed the condominium corporation for goods and services that were not delivered to them. It is, however, conceivable that these goods and services were delivered elsewhere.
Based on a review of the vendor records and the interviews that he had conducted with the likely perpetrators, the investigators discovered that the contractors had been billing the condominium corporation for renovations performed inside the units belonging to board members, and not in the amenity spaces and other common areas of the building as expected. Pointed and direct questions during an interview with a vendor would yield an admission of wrongdoing by paying kickbacks to one of the condominium board members. Based on the forensic accountant’s findings, the condominium unit owners brought a lawsuit against the corrupt board members and vendors, which ultimately resulted in a negotiated financial settlement.
Relevant Evidence:
- Condominium board meeting minutes
- Condominium board election documentation
- Condominium corporation bank statements, including banking records
- Condominium corporation procurement records
- Invoices from vendors to the condominium corporation
- Emails and other communication records between all relevant parties
- Public records, such as real estate records
- Interviews conducted with condominium owners, board members, the property manager and vendors