The MMO to avoid the scene of a construction fraud crime

Most crime shows eventually come around to invoking these three words somewhere in the script: means, motive, and opportunity (MMO).

In construction company accounting the means exist (falsify numbers or work), motive (more money), and opportunity (I can cover this up, so who’s going to know?). However, in too many instances light eventually shines on the deed, and the results when a crime is proved may include some or all of these four outcomes: fines, bad publicity, the company’s destruction, or jail.

Generally speaking, fraud is an intentional act, when someone knowingly uses deceptive information on a project, the execution of which is harmful to another party.

The reasons for construction accounting fraud can range from naked greed to desperation. If a company is operating on the marginal edge and a boost with unwarranted profit is available, the temptation may be too great to resist. However, the tragic outcome is the same.

Federal, state, and local authorities are taking ever-harder looks at contractors and construction fraud. Examples of construction accounting fraud beg the question: is any reason worth the risk?

A Memphis, Tenn. Contractor in 2018 was sentenced to two years in prison, three years supervised probation, and a fine of $517,00, for construction fraud against the U.S. government.

“As part of the scheme to defraud, Collins caused the roofing subcontractor, a small Memphis-area business, to perform work for which it was never fully paid. Additionally, Collins filed false and fraudulent certifications with the US Government indicating he had, in fact, paid the subcontractor. The value of the funds obtained because of this scheme was over $580,000."

The Memphis case is a relatively small example. Construction fraud can take on massive proportions.

In New York City, On Dec. 11, 2018, Politico New York reported that according to the New York Times, “More than 18 months ago, the Manhattan district attorney’s office opened yet another investigation into fraud in the city’s $62 billion construction industry, this one involving Bloomberg L.P., the financial information and media company owned by former Mayor Michael Bloomberg, who is considering running for president in 2020. As investigators peeled back the complex layers of contracts, contacts and under-the-table favors between electrical contractors, vendors and corporate executives they made a startling discovery: It was an inside job."

Fourteen people were arrested for fraud related to construction projects for Bloomberg, L.P. At issue was construction fraud amounting to tens of millions of dollars in overcharges, bribes, and more.

“As part of the scheme, company executives and subcontractors allegedly agreed to inflate contracts and pocket proceeds for work that wasn’t actually performed,” said “The Real Deal,” which covers New York real estate news 

Large or small, fraud is fraud, and it can hurt smaller companies far more than large ones, which may be better able to absorb the cost and the exposure. On occasion, the unveiling of one fraudulent act leads to finding more fraud. In May, a Michigan contractor pleaded guilty to fraud in that money was accepted to build a cottage that was never built.

A Northern Michigan contractor who was facing fraud charges — amid allegations he took money for building projects that he never completed — has entered a guilty plea to a felony in the case.

“In October, the Emmet County Prosecuting Attorney’s Office originally charged Russell with one count of contractor fraud, a felony punishable by six months to three years incarceration, stemming from allegations that Russell took a large down payment on a construction project that he never completed…In the affidavit, police said when they searched Russell’s home pursuant to a search warrant, they found documentation indicating that he owed $500,000 or more to various suppliers, subcontractors and clients."

The solution? Deal off the top of the deck. One fraudulent act almost invariably cascades into another, which sets off a chain reaction that explodes in scandal and legal consequences.

Finding a knowledgeable and experienced accountant with a history of providing business profitability strategies – without cheating – helps a business in three ways: motive (stay on the right side of the law), means (expert analysis and advice) and opportunity (best chance for success).


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