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Finding fiduciary fraud

Once someone is entrusted in a fiduciary relationship, an opportunity is created for that person to become less trustworthy, or worse, a thief. Whether structuring a new fiduciary role to prevent fraud or investigating fraud after it has occurred, breaches of fiduciary duty are great sources of work for fraud examiners.

An attorney representing a local condominium association called our firm to set up a meeting. Her client, a residential homeowners’ association consisting of 32 unit owners, learned that the property manager, we’ll call her Jane, had been using its funds for personal purposes. The board of directors, comprised of unit owners with varying degrees of financial knowledge, relied solely on the monthly financial reports provided by Jane.

The board had established a reserve fund and budgeted contributions to it for many years, and the association needed to use the reserve to fund a roofing project. Financial issues surfaced when Jane reported that the reserves were deficient and that they’d need to borrow outside money to undertake the project.

The board members, surprised to learn of the insufficient funds, demanded to see the monthly bank statements controlled by Jane, which she hadn’t shared. After several meetings and many emails, she still hadn’t provided the bank statements. The board grew more frustrated, so it held one final meeting and told Jane that the president was going to the bank to obtain replacement statements and check images for the association’s accounts.

At that meeting Jane told the board that she’d been using the association’s funds to fuel a gambling addiction at a local casino, and she’d depleted the association’s reserves. The board members quickly realized that the reports they’d been relying on were fictitious.


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