Forensic Accounting anyone?

Question

Does anyone have any experience with Forensic Accounting or had to do it on a property?  I, unfortunately, need to go back in time to see if a property manager I was using was stealing from me or doing anything shady.  Is this something that any accountant can do? Or a specialist of some sort?

Christian Rojmar · Answer

@Jesse K. Sorry to hear. The company I work with specialize in determining damages in intellectual property litigation but we have done some forensic accounting work as well (never related to an investment property however) and there are certainly people/companies that specialize in forensic work. I would need more information from you to be able to give a more detailed picture but on a high level:

If you have statements going back in time from your property manager, as well as your own bank statements, vacancy periods, etc. a first step may be to go through that data yourself to get a big picture idea of whether something odd is going on and at what level. If you find discrepancies, you may want to call the property manager and explain the situation and ask him/her to provide statements/information surrounding the discrepancies and that you will get a lawyer if not.

If property manager refuses to provide such documentation, the next step may be to hire the attorney and go through the court system to get discovery from the property manager. Also note that there is a good chance that the property manager may have destroyed or "do not have" the relevant documentation anymore depending on how far back you believe these activities has been going on for which will complicate the process.

Hiring a lawyer will be expensive and especially if it goes through the arbitration process. And if you do not feel comfortable and confident going through all the data yourself to determine the damages due to the wrongful acts of the property manager as well as testifying in front of an arbitrator as to the appropriate damages, you will need to hire an expert whether it is a CPA, forensic accountant, or a more general damages expert. The cost of hiring an expert can  add up quickly depending on the amount of discovery. If you know any CPA's, they could likely do the work for you because it is pretty simple and straightforward work - problem is that it can be very time consuming. The benefit of hiring an expert is that the credentials can be helpful in arbitration.

If the property manager works for a management company, going through BBB can be one approach as well even though BBB is so and so in my opinion.

Maybe also a small courts claim to avoid litigation expenses depending on amount that may have been stolen from you.

PM me if you have any particular questions or would like to discuss in more detail.

Daniel Hyman · Answer

Yikes. That's a terrible position to be in. I'm not sure if there are firms that specialize in that area, but I imagine that if you look hard enough, you'll find one.

Alternatively, you could set up your own books and enter all the transactions for the PM statements, bank statements, etc. Once you reconcile the statements, you'll probably catch any funny business at that point.

Jesse Kreun · Answer

@Christian Rojmar - Thank you so much for the advice!  I think I should be able to do a lot of the work myself -  like you said it just takes time.  I have the raw data in excel and am pretty good with excel, so maybe that will speed it up a little.  I can hopefully see if anything looks shady and if it starts looking "off", I can then hire a professional to redo some of the work or help me out.

Jesse Kreun · Answer

Thank you @Daniel Hyman.  As you say, I may be able to figure it out myself.  Now it's just a matter of finding the time.  :/