CASE STUDY

Forensic Investigation

A business case of how the dVT Group conducted a forensic accounting investigation on the rent roll of a real estate company, which led to compensation claims and charges being laid.

Situation

A legal colleague came to the dVT Group with a client who had come across some difficulties in selling his business, a long established niche real estate agency in metropolitan Sydney. The business had a rent roll for a number of commercial and residential premises in the area, and the client had recently began having problems in negotiations with the incoming purchaser. There were allegations of poor documents and monies unaccounted for with the rent roll, and these were causing the purchaser to lower the price that they were willing to pay for the business. We were asked to step in and see whether we could identify the problems and any possible resolutions.

Actions

Our first request was to ask for the latest financial data for the real estate agency and the rent roll. Once we had reviewed the rent roll, bank reconciliations and ledgers, it was very clear that there were transactions requiring further investigation. In addition, it was clear that the real estate business was not going to be able to support any deficiencies in the rent roll, and it was recommended that the company be placed into liquidation. This was to protect creditors, shareholders and directors from ongoing losses, but also to give the liquidator the necessary powers to obtain documents and start the investigation. We also identified that the company’s auditor had failed to bring the discrepancies to the notice of the director, and had not highlighted the discrepancies in any of his audit reports going back at least seven years. dVT’s investigations into the transactions revealed that a former employee had taken cash and cheques from the business over at least seven years, hiding those thefts by manipulating the banking records at a growing rate and providing property owners with false statements of account.

Outcomes

With our own experience and expertise in financial investigation and analysis, we were able to trace the transactions going back a number of years and reconstruct the ledger for the rent roll. This enabled us to estimate the losses incurred by each property owner, which in turn then enabled them to make compensation claims against NSW Fair Trading funds. From our reports, NSW Police were able to lay charges against the former employee for the theft of close to $1 million from the company. We were also successful in settling with the former auditor for a similar amount, which ensured that all creditors were paid in full.

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