Forensic Accountant - Real Estate Frauds Introduction

[Marlon Balogh]

Several Basic Fraud Schemes to Note:

I have now been in accounting and specifically in Forensic Accounting and Fraud Examination for 7+ years not only dealing with your typical frauds, embezzlement, theft, and breach of contracts, I have been a part of numerous high profile cases dealing with politicians, real estate developers, even big pharma.  All areas of our lives include some form of deception and fraud. 

With this, it has become even more apparent that particular frauds can occur more easily within real estate development, investment structured partnerships, construction, and other contractual services. There are several types of fraud that can occur: 

1. Ghost Employees - During construction/renovation ghost employees can be claimed by the general contractors ("GC"). For instance, during a construction project, 5 employees are claimed, but in actuality only 4 existed on the renovation site on that particular day. A fictitious time sheet or roll was then made in order for the day to account for 5 employees as opposed to the 4. 
2. Materials Fraud - if you are inexperienced, materials are quite easily overlooked.  For instance, if you purchased marble, but received a cheaper stone - it is often difficult to know whether the stone is marble or quartz simply by looking.  This can happen in all aspects of the project.  Furthermore, a form of embezzlement occurs when materials are purchased but not utilized for the renovation project.  It is very important to maintain receipts, invoices, and to inspect your site. 
3. Time theft - if contracts are based on hours worked - it becomes "easier" for workers to claim additional time - usually in increments of half hours or full additional hours. In numerous cases, with the absence of a project manager or a partner on site to determine timing of work, it becomes a risk that full hours are claimed each day.
4. General Conditions - General Conditions is an account often used by general contractors usually assigned for site development and maintenance. This category often includes minor tasks of cleaning and sweeping, and preparation for development. This particular account is often abused and can includes frauds 1 & 2.
5. Embezzlement and improper use of invested funds - if funds are not adequately reported, receipts and invoices not properly documented, it becomes easier for the managing partner to utilize funds for "reimbursements" not entirely connected to the investment property or renovation costs. 

If you would like to know more on how to prevent or detect such occurrences on current or past projects, feel free to contact me directly.  I could also make a continuation of this post if enough interest is shown!

You may contact me directly here on bigger pockets to continue the conversation :)