All Forum Posts by: Marlon Balogh

@Drewy Osazuwa again, I appreciate that, but depends on size of project, I see materials fraud and abuse on a regular basis, invoices, receipts, and confirmation and use of materials on large scale projects needed. Often that is covered in the AIA or request for payment. If you are on a small project or have project manager always good to have oversight.

@Frank Hinck Thank you - trying to learn how to contribute more to BP on the lines of forensic and fraud/legal disputes in RE.  If you have any suggestions, please advise.

@Drewy Osazuwa Thank you - always makes sure to audit the quantity purchased is either the quantity used or if you have additional materials left over. This is a great tip as well, I'll be sure to make sure to use the HomeDepot app for purchase, or accompany the contractor when possible.

@Steve Morris Steve thank you much for taking the time to respond. Its a journey for sure. I appreciate it. A lot of reflection on my end needed.

@Jody Sperling Jody, thank you so much for sharing your plans and layout of your decision making. I appreciate the sharing of numbers for perspective. It is also.my goal to at best for now buy rentals that will at the minimum pay for my monthly expenses while I consider a career change.

@Dan Weber I appreciate the suggestions. I think it will be a better move to get on hands experience as I build my portfolio.

Hi All, I am currently a forensic accountant and fraud examiner considering to make a career change into full time real estate, whether becoming a project manager and investor. Its been a difficult time clearly for many, but certain events in my life has brought me to the conclusion, I truly rather be doing something that brings joy and a sense of accomplishment as opposed to pushing papers (pdfs, excels) all day.  What was your journey to moving over? What is your advice? Let me know. 

As a forensic accountant and fraud examiner, I have dealt with numerous cases in which a land owner and general contractor face disputes with one another 1. Over the amounts of materials actually purchased and used for the project, and 2. disputes over the type of materials used but paid for by the land owner. (wanted marble but quartz was installed instead.  

These types of materials fraud can be minor or become quite excessive making plenty of renovation projects over budgeted and expensive.  

There are several things you can do to protect yourself - 1. always obtain receipt of the products and purchases. 2. be on site or employ a project manager to observe materials and/or installation of products. 3. approve a budget ahead of renovation and review any change orders that include manual labor and materials. 

In a particular case, the general contractor and even the project manager approved of additional materials, but were not utilized within the property renovation, but instead GC had such materials sent to another location for a separate and personal project of their own.  

Please always take note of addresses of invoices and receipts, and consider the timing of each project when comparing data.

Would love to continue the conversation!! Let me know if i should continue posting more about possible fraud schemes in RE. 

@Account Closed Thank you - I take pleasure in my day job and hope to apply it when building my RE portfolio.  If I can also help people along the way - it just adds that much more meaning to my work.

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 :)

Hi David, as these cases often drag out please let me know if your friend still requires a forensic accountant or fraud examiner!  Would love to connect.