Embezzling or theft by a manager or employer is a topic most owners never consider. But many owners are losing money right now and don’t know it. It can happen in the best of buildings and in the best of management situations. If a manager wants to take money it can be done. In my experience, whenever most owners experienced embezzlement, they were deeply shocked—they never thought such a nice couple could be dishonest.
First, what are some “popular” ways in which money can be taken? Think over these seven.
1. An apartment is listed as vacant even though it has been rented. In such cases a manager has to have an owner or supervisor who does not inspect the apartments regularly, and the manager merely buys a receipt book from a stationery store. The tenant has no idea what type of receipt is used by the building. Such a manager could even take a check from this secret renter, and get away with it.
2. Move-in dates are juggled. When a tenant comes to the building on the 15th of the month, the manager says, “Just pay me one-half of the month now and we will start the least on the first of the next month. Just leave the date blank as I’ll fill it in with my stamp.” The manager can easily open a bogus bank account to cash any check for which she has given a receipt from the “private” receipt book.
3. Extra deposits are collected. The dialogue could be, “Please give me $300.00 for the security deposit and other deposits and another $100.00 check for a cleaning charge.” This type of embezzling will probably be discovered later when the tenant moves out, but the manager isn’t thinking that far ahead.
4. “Delinquent” tenants. A tenant pays the rent promptly, and tells the manager he is moving. The manager knows that the apartment owner is slow to follow up on late payers, so the manager simply pockets the money! When the owner questions the late payment, the manager alibis for a while. If a three-day notice is given to the manager to serve, he can destroy the notice! The manager can say there is a problem in getting the notice served; then after a few days he can tell the owner that service has been completed. When a few days drag by, the tenant can have moved and the manager and the owner may then well agree there’s no need to complete the legal action.
5. “Walk away.” A manager simply collects a month’s rent and leaves!
6. Phantom Supplies. A manager uses invoice forms to list expenditures that were never made.
7. Conniving With Repairmen. If an apartment needs painting, for example, the manager schemes with painters to have the bill enlarged enough to include a kickback for him.
New ways to cheat are being invented daily. All we can do is to supervise our projects as closely as possible and try to remove temptation. One of the worse cases of embezzling I ever heard about was when an owner let a manager make the bank deposits (which is fine), but he also let her reconcile the account monthly. The owner thought he was building up a nice reserve for the December taxes. Then one day he wrote a check and it bounced. The manager had been making deposits with some phony checks. These would be returned as Non-Sufficient Funds checks, but of course these NSF checks all came to her with the rest of the statement. The manager had been pocketing a good share of the money, but sending the owner the bank deposit slips showing large deposits.
Once I took over a building from a builder. His records showed 4 vacancies in a 50-unit apartment house. I went the next day with his master key to check those vacancies, to verify their condition. Three of the “vacancies” had tenants in them, who had receipts from an “outside” receipt book. Some of the tenants had been there three months. I told the manager what I had found after collecting all the rents that she had. I told her to check her records and I would be back early the next morning. The next day she told me that the checks had fallen behind her money box, and she then gave the money to me. The large amount was in the form of a bank cashier’s check from her bank. The manager professed to be puzzled when I replaced her right after this incident.
Several steps can be taken to reduce the probability of embezzlement. Constant supervision is essential. And often certain signs are helpful. For example, are your managers having severe financial troubles? Are their records poorly maintained and/or not current? Do tenants’ paying habits seem to have changed? Is your manager vague on new tenant move-ins?
Vacancies should be checked constantly. If the managers know you make a habit of doing this, they will not be able to call apartments vacant or to juggle move-in dates. If you have any suspicions, you could send a letter yearly to the tenants asking for recommendations on the building. In it you could then ask for verification of due dates, lease date, deposits, etc.
All delinquencies should be questioned quickly and notices filed fast. Don’t let a tenant owe you money. Suppliers should be spot-checked regularly. And periodically, get new bids and estimates on some jobs even if you are satisfied with the work done to date. Don’t ever let managers control the determination of work to be done, selection of people to do it, or approval of payment for it. One of these functions has to be done by an outside person. In no business do you let one employee control the making of bank deposits, check writing, and reconciliation of the bank account. Help your manager stay honest—by not letting him be tempted!
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