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Brandlin & Associates News |  |
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Desperation? Greed? The reasons people commit financial fraud range across the spectrum from need to greed. Interestingly, as demonstrated in Dartmouth vs. Real Estate International, Inc. (REI), for which we were an expert witness for the plaintiff in a civil case and for the San Diego District Attorney in a criminal complaint, sometimes the perpetrator does not even know why he/she committed the fraud.
Dartmouth had entered into a joint venture with REI to build approximately 50 custom homes in northern San Diego County. The Dartmouth partners became suspicious of fund diversions when returns were only about 50% of normal for custom home building. REI acted as the manager of the day-to-day operations and was responsible for financial reporting to Dartmouth. REI's reporting and explanations for variances from budget were not satisfactory to Dartmouth. Despite an investigation by an accountant that did not uncover any accounting irregularities, Dartmouth eventually fired REI and commenced its own investigation. Shortly thereafter, whisteblowers came forward with information that validated Dartmouth's suspicions. As reported in The San Diego Union- Tribune on December 16, 2007, a civil suit was filed in November 2004 alleging financial improprieties by three of the owners and an employee of REI. As an expert witness for the plaintiff, we conducted a thorough investigation of accounting records to identify the alleged fraudulent transactions and fund diversions by the defendants. We prepared and issued an expert report to counsel. The civil matter settled prior to trial with the defendants agreeing to pay $1.7 million. Subsequently, the San Diego District Attorney proceeded with a criminal case against the REI defendants. As an expert witness for the D.A., we created financial and transactional summaries, trial exhibits, exemplars and other documents for the trial. Jeff Brandlin was prepared to provide expert testimony. As reported in The Alpine Sun on May 7, 2009, the REI defendants pleaded guilty of grand theft, admitting that they had embezzled from REI. They were sentenced to jail time and financial restitution, are banned from serving as principal or partner in any new real estate firm, and cannot manage money. When it comes to suspected fraud, follow your instincts. Reviewing a company's financial reporting protocols on a regular basis may identify holes that put the company's principals or lenders at risk.
Brandlin & Associates is an exclusive provider of accounting due diligence, financial consulting and strategic consulting services. We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner. |
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