Every commercial property needs a property manager or management team. Once the manager/management is in place however, finding their fraudulent activities and/or theft can be difficult. Let’s examine why you need an extra pair of eyes, by looking into a real life scenario.
Meet Thief Jessie
Jessie is a top property manager. People rush to hire her when she applies for a position in property management because she is very good at what she does. Jessie was once employed to manage a certain property, where she was earning top pay including additional performance based bonuses.
Jessie became displeased with her compensation however when saw that the property owners were making dividends of $500,000 every year. She wanted a larger portion of the returns from the property she managed. Jessie devised a clever plan to keep some of that “dividend” money for herself. She began by assigning cheques to herself. Jessie had complete control over the accounting work so it was not hard to hide her theft.
Jessie kept at this for a long time and tried to clean her tracks. This went on for 5 years. Jessie had an accident and while she was off duty, the new accountant hired by the owners went through the records and noticed the scam that Jessie had been running while she was out in recovery.
The owners were let down and when they confronted her, she admitted to it. Jessie was put behind bars, sentenced to four years with a fine levied against her for $200,000. Unfortunately the owners could not get the money because Jessie no longer had it and filed bankruptcy.
Safeguard Yourself from Property Management Fraud
Over the course of five years, Jessie embezzled $400,000. It is unfortunate but these things happen. According to the Association of Certified Fraud Examiners, the highest levels of fraud (about 44%) are committed at the employee level followed by the manager and executive levels. As a property owner, you should have control over your property accounts even when the role is outsourced.
Here are some of the roles of a property manager that can be leveraged for fraudulent activity.
- Rent collection
- Repairs and maintenance
- Inspection of the property
- Security deposits
- Mortgage and utility payments
3 Ways Property Management Fraud is committed
As a property owner you should always be on the lookout. Below are 4 ways property managers can embezzle from your property:
1. Create large invoices
Examples; they can create a $500 invoice for certain contract services, which gets paid to a ghost company (their company). They proceed to pay the invoice for work not done and they keep the cash. The work was not needed, so they created one and paid themselves for work not done.
2. Write double checks
This is what Jessie did and it was not discovered in years. The property manager assigns one check for utility expenses and another check for themselves. They proceed to cash both checks, pay themselves, and come back to change the checks in the accounting system to the utility vendor.
3. Receive Kickbacks
Example; the property manager orders a $4,000 AC unit, the AC unit actually costs $2000. After they pay $4000 for the AC unit, the company kicks back $2000 in profit to them. This is definitely not ethical at all.
3 Signs Your Property Manager Could Be Embezzling From Your Property
Property managers are also humans like us, they are given the responsibility to carry out their roles. At times, their private lifestyle can have an impact in their work lives and you should look out for this signs. Here are some signs they are likely to exhibit;
- Living above their pay
- Financial problems
- Addicted to either Gambling or Drugs lifestyle
3 Ways to Prevent Property Management Fraud
1. You should get your own Accounting
You need to have complete control over your accounting work. Don’t forget Jessie had full control over the accounting duty. She took care of everything accounting related or even close. The property owners should have given the accounting task to someone else or perhaps, handle it themselves if they can and if they have free time on their hands.
The best practice would be to assign the task to a different person. While one person enters the data, the other takes care of the bills.
2. You Should Have Full Access Over Bookkeeping
Should you be the bookkeeper? No. However, if you can handle the task without it meddling with other duties of yours, by all means go ahead. It is advisable you know what is happening in the books using any software to help you stay updated.
You as the property owner can request for your own specific ID number, with that, you can have access to the information on the software. You can check your expenses and all.
3. Absolute Internal Control
Every procedure needs to be on paper. You should know everything that is happening. Make out time to look into your business before you no longer have a business to look into.
You can appoint someone to always cross-check every single process, perhaps a trusted aide. When you always double check every process, you put the manager on a tight leash that you are cautious of your business. These reviews should be periodic. Refer to check out the resources available from Core Accounting to ensure smooth running of this process.
Property managers have gone on to devise ways to keep embezzling money from property owners. It is up to the property owners to make sure that they do everything in their power not to allow the property manager feel free to do whatsoever with their property.
Property owners need to have full control and always check in thoroughly on every process that takes place. By doing this, they save their business.
At Core Accounting, we help condo associations with finance needs. We cover every loophole and ensure accountability. If you need Condo accounting services, you can always reach out to us and our specialized team will be ready to offer help.