So, what went wrong?
It doesn’t matter if all the money did make it into the project when funds are requested for specific purposes and not used for those projects fraud has likely occurred. Co-mingling of funds designated for specific purposes used for other than stated purposes is a case for fraud.
Was there a project budget prepared and reviewed for accuracy? If so, then disbursements should have been done based on those budgeted amounts. If there was a deviation from the budget, then a report should have been submitted explaining why.
The government agencies should have reviewed the invoices. Better yet a third party should have overseen dispersing payments and reviewing invoices to see how they compared to the bids/quotes. This is standard procedure with most financed construction projects. The general contractor or construction manager handle all payouts when due and according to the bid/quote. Draws for funds are only requested and issued based on submitted invoices.
Was a vendor audit done to see if the invoicing was for legitimate services that were delivered and at the budgeted amounts? Risk of collusion with vendors is a common fraud practice.
$621,000 for kitchen equipment that was not purchased? How do they expect to open the restaurant without kitchen equipment when the money was spent somewhere else?
Was the IT/phone contractor and historic consultants not fully paid for their services? If not the issue of release of lien waivers will become problematic because the contractor will hold liens on the property until fully paid. If they released their liens prior to getting paid, then too bad for them.
So, in conclusion this case should be a lesson that venture funds, grants, loans and direct investments need to be protected for the stakeholders by implementing a fraud prevention program within the business plan or proposal.
Link to GB Press Gazette article here: