In the past year we have seen this scheme apparently attempted by a number of property managers who seemingly can’t resist the temptation to bamboozle board signing officers who depend on them for professional property management services.

It’s a simple, classic case of duplicate invoice fraud which can be perpetrated on any condominium by an outside vendor, but always requires participation of a management insider who directly handles accounts payable.

First, a legitimate vendor invoice for services or goods is accepted by the condominium property manager, processed by the management company back office, and a cheque is cut. No problem, it’s a straight-up transaction for legitimate goods or services. A board officer examines the backup documents, signs the cheque and it’s done.

But then several months later, a duplicate invoice appears, same vendor, same goods or services. Perhaps there are cosmetic changes such as different font or layout. The invoice number may be same or different. Perhaps the description is a bit different in minor ways, whatever. But it’s the same total amount. The invoice is accepted by manager, processed by management back office, and presented to a board officer for signature.

And that’s when things become interesting.

If the board officer (typically the president or treasurer) is dutifully alert, he/she will recall that these goods or services had already been invoiced and paid. The cheque will not be signed, and in examining the supporting documentation, the board signing officer will ask the manager, “Why are you asking me to pay this again?”

Now the manager is in a bind. If it’s an invoice that truly was accepted in error, then the manager looks inept and has some explaining to do: “I don’t know, let me examine that, I will see what happened.” And the alert board officer should continue to press the matter and ask, “Why did you not check the backup documents? Why do you pay this just because they sent it? Was it not previously crossed off your list of pending invoices and marked as closed?”

Yes, a dutiful board officer will push hard for deeper explanation and probe to see if the manager is actually doing a proper job — even if the answers are uncomfortable or put the manager in a bad light. A typical mid-size condominium corportation pays well over $100,000 anually for professional property management services, and therefore has every right to expect these kind of errors not to occur, especially when they are properly suspected to be caused by the manager’s inattention, lack of care, or sloppiness.

The alternate explanation, much more troubling, is that the manager accepted the duplicate invoice with full intention that it be paid a second time, because the fix is in between the vendor and manager to commit invoice fraud against the hapless condominium corporation. Yes, a fraudster manager can collude with a cooperating vendor to push through duplicate invoice payments and split the windfall in the form of a 50 percent kickback to the manager. Unfortunately, this is not as rare an occurence as many people wish it to be. In fact it is an extremely easy fraud to pull off when condominium board signing officers are compliant, meek, uninformed or disinterested. Sadly, this probably describes the circumstances found on a very large number of condominium boards today.

It is shocking how many boards treat the cheque-signing function as some sort of robotic activity. The board officer’s signature is the most vital protection and control against fraud by management or by contractors. The cheque signing function must be diligently completed outside of the management office, with ample time to read and study all backup documents. Board members should never sign any cheque on an asap basis when requested by a manager. Why the rush? Take it to your suite and study it overnight. Do not allow a manager to pressure you for signatures. And when something is amiss in the backup documentation, return the cheque unsigned and get an explanation, then test that explanation against your own knowledge and business common sense.

Any condominium property manager with frauduent intent will know how best to stick-handle questionable cheques past board members, how to distract them when signing, or make a big show of some unrelated issue and then slip in a few extra cheques at the last moment just as the board officer is leaving the office. There are dozens of ways to get that vital cheque signature for a fraudulent payment if a condominium manager is desperate for it.

As part of our audit services for condominium corporations, Eagle Audit provides coaching for signing officers regarding payment processing red flags, proper cheque signatory procedures, and payment tracking templates. We also can review your condominium’s cheque ledgers for names of vendors we have logged in our watchlist as suspected participants in fraudulent invoice schemes.

So what happened to that $8,000 duplicate invoice in a client condominium corporation that was caught earlier this year? When the matter was raised by an alert board member, the manager readily stated, “They must have changed their accounting system.” Hmmm, such a convenient explanation, right at the tip of her tongue… she didn’t even have to make a phone call.

And then the duplicate invoice disappeared, like magic!

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