Case of the Month: Accounting for a GC

Aug 1, 2013 by

A general contractor sued his client for $2,000,000, claiming he was due money according to his contract terms.

The client had hired the contractor to build three properties, an industrial facility and two multi-million dollar homes.

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The contract was developed as “cost plus.”  The contractor was to be paid for his subcontractors’ work plus an additional ten percent fee added for his supervisory function.

The client had already paid approximately $6,000,000 to the contractor.   The client felt there were financial irregularities and refused to pay the general contractor the additional $2,000,000 that the GC demanded at completion.   The client thought that he was significantly overcharged.

The general contractor litigated and claimed damages in the amount of $2,000,000.   The contractor submitted thousands of pages of documents to the court to prove his claim.  He submitted his invoices, subcontractor invoices, receipts, and various notes and emails.   The quantity of the information was vast, and it was in poor order.

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Onisko & Scholz, CPAs (O&S) were retained as the forensic accountants by the defendant to assess the validity of the claim.   They interviewed the client and his employees, reviewed court filings, and reviewed the deposition testimony.   O&S then took a statistical sample of the documents submitted to the court to determine the frequency of errors and duplicate billings.

Based upon that sample, a determination was made with counsel and the client that further investigation would yield significant additional evidence of improper billing practices and overcharging.

O&S then reconstructed the books and records of the three projects.   Substantial irregularities were found.   O&S found invoices for materials and supplies, as well as subcontractor invoices, that were submitted multiple times for payment on different general contractor invoices.

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Invoices for subcontractors, materials and supplies were submitted for payment that belonged to other projects that the general contractor was working on simultaneously, which were unrelated to the client’s projects.   After all of the legitimate invoices for subcontractors, materials, and supplies were accounted for and tallied, the total was slightly below the $6,000,000, which was already paid.

In a trial that lasted over two weeks, Kim  Onisko testified regarding the findings and the fraudulent activities.   Mr. Onisko testified that the funds paid to the general contractor were sufficient to pay for the work performed.

The court found his testimony credible and ruled in favor of the defendant.

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(A note to our readers-the accompanying photos were not from this case but were included for visualization purposes.)