How Can a Forensic Accountant Assist with Surety Claims?
06 August, 2013-
Glenn Ricciardelli -
USA
New construction is a key component of the economic growth, with commercial construction among the leading sources of new jobs and increased capital spending in practically every geographical market.
With millions of dollars on the line for investors, construction companies, subcontractors and a host of others, keeping construction projects running on schedule, within budget – and making sure everyone attached to such projects is paid in a timely fashion – is essential to a successful project.
But sometimes things do go wrong and, when they do, project owners often turn to surety bonds, which can help to save the day. These bonds, issued in various forms by financial institutions, corporations and other entities, provide important guarantees that a contractor will complete their responsibilities on a project.
“While surety bonds do not represent your typical first party insurance policy, they are similar, and surety claims personnel are parallel to those that we currently service in our insurance consulting practice,” said Glenn Ricciardelli, resident managing partner for MDD Forensic Accountants in Boston. “A surety guarantees specific performance, and once someone invokes a surety bond during a construction project, you know nerves are going to be frayed.”
Forensic accountants can assist in these situations by providing the surety company with an accurate and timely snapshot of the status of the project and what’s gone wrong on the construction site. Is a contractor behind schedule due to a lack of resources? Did a sub-contractor fail to deliver or complete a key element of the project at a critical time? Did a key subcontractor walk off the site due to non-payment by the general contractor?
“We’ll be able to gather the financial facts necessary to assist the surety in ascertaining whether there has been a default or material breach in the contract, or whether it constitutes the typical bumps that you encounter in the construction process” Ricciardelli said. “We try to establish a working relationship with the developer, the contractor, and the surety, so that we can develop a clear perspective of the status of the project as quickly as possible.”
MDD can determine who’s been paid, who’s delinquent, and what next steps might assist in trying to get the project back on schedule. In the event the surety elects to replace the contractor, MDD can assist in tracking the costs incurred to complete the project, while segregating any acceleration or increases in the cost to complete the project. MDD can also assist the surety in recovering these costs from the original contractor in accordance with the terms of the surety bond.
“The faster you find out what’s going on, the faster the surety can make the necessary decisions to try to get the project back on track and completed,” Ricciardelli said. “No one benefits from prolonged and needless disputes in the construction process, and avoiding a default is almost always better than cleaning up after one.”
By Glenn Ricciardelli. Published in Forensic Insight – April/May 2005.
The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.
Glenn Ricciardelli
CPA, CVA, CFE, CFF, Partner
- +1 617.426.1551
- gricciardelli@mdd.com
- Boston, MA, USA
Articles
Relevant Articles
Our experts are extremely knowledgeable about thier subject areas and often write educational material and commentary on topical issues they come across.
Top 15 Accounting Habits of Successful Contractors
Who doesn’t love a list of the “Top” things to do? Topics like the “Top 15 Vacation Getaways for under $1,000” or the “Top 15 Road Trips Around America” garner a lot of excitement. So, it would stand to reason...
Is Your CPA a Historian or a Trusted Advisor?
One adage that I hold true is that the direction of one’s life can be determined by the relationships that one keeps. My grandmother said it a little more plainly: “Show me your friends and I will tell you your...
How to Tackle Employee Fraud
Picture this, you, CFO, are sitting at your desk when an anonymous letter arrives alleging that employee X has been committing fraud against your company. Your first thoughts might be disbelief, anger and betrayal. You may question your relationship with...
COVID-19 and Fraud Claims
COVID-19 has sent shockwaves throughout much of the insurance world. Insurance company stocks have been some of the worst performing since the virus went, well… viral, in anticipation of declines in profits due in part to COVID-related claims. Much of...
Fraud in the time of COVID-19: Proactive steps to mitigate fraud risk
As the markets react to each update on COVID-19, a quote from Warren Buffet has seen increased circulation: “Only when the tide goes out do you see who’s been swimming naked”. The current environment has seen increasing news of corporate...
Adding up Cost of Construction Delays
No one likes delays. Whether it’s a rain delay at a sporting event or a subway delay stuck somewhere beneath the city of Toronto, delays cost us time that we would rather have spent doing something else. Sometimes, however, delays...
“Frenemies”: Is your organisation in bed with Brutus?
A growing area of concern for corporates is the proportion of fraud committed by “frenemies”, an encompassing term for the third parties a company works with on a day-to-day basis. This includes suppliers, agents and consumers: entities with which a...
The Better Way – Tips For Implementing Controls To Prevent Fraud
Last week, the Auditor General of Toronto issued a report estimating that in 2018 alone, the TTC lost $61 million due to fare evasion. As both a frequent rider of the TTC and a forensic accountant specializing in fraud investigations, I...
Fraud and Corruption: How Culture Impacts Effective Risk Management
The Fraud Triangle: Rationalisation, Opportunity and Pressure Any elementary student of fraud will be aware of the “Fraud Triangle”, a theory developed by Edwin Sutherland and Donald Cressey. This theory posits three elements of fraud: Rationalisation (the ability of the...
Fidelity / Fraud Losses: Forensic Investigation and Loss Quantification Concepts
A fraudster’s gain is someone else’s pain – or loss; but is the corporate fraudster’s gain always the same as the insured’s financial loss? Are the financial implications of the fraud always the same as the actual loss to an...
How to Protect Your Business Assets – What You Should Know
The most common response I hear from business owners who are victims of employee fraud is “I never thought this would happen to me”. Employee theft, especially in the automotive industry, is common, because small businesses such as car dealerships...
3 Tips On How To Protect Your Firm From Fraud & Internet Theft
While we’re thinking about turkey and cranberry, an important business holiday will come and go – not with the same fanfare as Thanksgiving perhaps but with significant potential for preserving the business future for those who take note. During International...
5 Ways You Should Be Using Your Financial Expert
Moore v. Getahun 2015 ONCA 55 is a case that has already generated a lot of discussion and navel gazing in both the legal and expert communities, and I hesitated for quite a while before deciding that I had anything worthwhile to...
Cheque Fraud – Who Is Responsible?
When a business falls victim to cheque fraud, it may look to its bank for recovery for allowing the fraudulent cheques to be cashed. In some recent cases, banks have been found liable and have been required to make whole...
Assessing Financial Motive
It is alleged that your client had financial motive to commit a very serious crime. Forensic accountants are often utilized to analyze the defendant’s financial records, and provide an opinion on the existence of financial circumstances that assist in assessing...
Accounting Fraud, Occupational Fraud & Abuse – A Clear & Present Danger to Your Business
The U.S. Chamber of Commerce estimates that occupational fraud costs U.S. businesses over $50 billion annually and that one-third of business failures are directly related to employee theft. The Chamber also estimates that 75% of all employees have stolen from...
Benford’s Law: A Powerful Tool for Uncovering Fraudulent Financial Transactions
Usually when you tell people that you’re a forensic accountant, you’re met with the same predictable and equally awful response: “So, you count dead peoples’ money?” Well, not exactly. It’s generally followed by something like, “You must be really good...
Accounting For Attorneys
It is becoming increasingly important for attorneys to understand financial statements and their relevance to various types of business and legal situations. The non-accountant attorney will greatly benefit from a basic understanding of the key principles of accounting. Equally important...
Financial Statements are Friends not Foes
Discovery is under-way. The records are starting to flow. As you leaf through a box of documents just delivered, you pull out a stack of financial statements and, like so many other attorneys, you cringe. As you scan through the...
How Can a Forensic Accountant Assist with Surety Claims?
New construction is a key component of the economic growth, with commercial construction among the leading sources of new jobs and increased capital spending in practically every geographical market. With millions of dollars on the line for investors, construction companies,...
Are Risks Hiding in the way your Revenues and “Expenses” are Reported?
Are you concerned about how your employees can get around your accounting policies or what unintended impact they might have? Here are two areas where accounting policies may pose a risk. Revenue Recognition Revenue recognition is always on the mind...
5 Steps to Investigating Fidelity Claims
Fidelity losses are difficult to investigate because frauds can be complex and hard to detect. Here are 5 steps to keep in mind when assessing fidelity claims. Understand business and accounting system Identify who performs the accounting duties and the documents generated...
Fight the Battle on Two Fronts – Liability and Damages
Plaintiff and Defense attorneys are guilty! Guilty of waiting until the last minute to address areas of damages. MDD is very often retained in litigation engagements when the measurement of damages takes a back seat to liability and causation. Although...
The Role of a Forensic Accountant as an Expert Consultant and an Expert Witness
For many years, attorneys on both sides of the courtroom have turned to forensic experts to support their position as well as to identify the potential strengths and weaknesses in the arguments of opposing counsel. Additionally, attorneys can use expert...
