Embezzlement in Self-Storage: Danger Signs for Facility Owners and Tips for Prevention
Copyright 2014 by Virgo Publishing.
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Posted on: 10/03/2011



 

By Carol Krendl

Embezzlement is often labeled as a white-collar crime because it refers to the nature of the criminal (a person of respectable status) and the environment in which the crime occurs (a professional setting). White-collar crimes are typically non-violent and intended for personal financial gain. Embezzlement qualifies, incurring all levels of financial loss.

Embezzlement affects thousands of self-storage properties every day. Although it’s not violent, it can cause serious suffering to those involved. The damage is not just financial, it’s personal because there’s a violation of trust. While the punishment for this crime is matched to the value of the property misappropriated, it’s more difficult to make amends for the emotional damage. To eliminate instances of this crime, it’s this interpersonal aspect that must be addressed.

Danger Signs

There are signs of theft and embezzlement for which self-storage owners should be on the lookout:

Employees who never want to take a vacation. The employee doesn't want anyone else at the store to see what’s going on with the computer, physical inventory or customers.

Managers who cannot seem to keep assistant or relief employees. Keep an open line of communication with relief employees. They will often tell you about problems or issues if something doesn't seem right at the property.

Inadequately trained relief personnel. In embezzlement situations, relief employees are often not asked by the manager to make deposits, call delinquent customers or do weekly inventory of the space.

Employees who tell customers they’re the facility owner. This may sound strange, but when an employee wants a complaining customer to go away and not cause any undue attention or problem, he simply says he’s the owner. It’s important that customers have a way to call your home office and make complaints. This keeps a line of communication open between upper management and tenants.

A change in the manager's lifestyle or behavior. Watch out for changes in the way employees live and their buying and spending habits. Managers with medical or IRS problems have extra stress on their personal finances. They may choose to make up the money from funds at the property.

Employees who never complain. Most employees have some complaints about the property, pay, petty cash, etc. In general, embezzlers don't complain because they know that behavior will only bring attention and disrupt their system.

Low cash deposits. As an owner or property manager, it’s a good idea to trend the monthly cash payments and income at the property. If the cash payments change dramatically, you may have a problem.

Delays in making timely deposits or deposit errors. Deposits should be made daily in the order they were received. Once per week, track the daily deposits and when they were actually deposited to the bank. Ask managers to submit their daily close from the computer, with a detailed deposit slip and bank receipt. Also, check each month's bank statement carefully for any deposit corrections.

Overage or underage in the daily cash-drawer counts. Check the petty cash and cash drawer when you’re at the property. Most embezzlement begins with petty cash. Each receipt should be carefully reviewed. If you find something unusual or personal on the receipt, discuss it with the employee immediately.

Managers who don’t move a customer out of the computer when the unit is vacated. This is a way an employee can take a credit in the computer and either use it for that space or transfer it to another space. Rent credits are now the most common form of embezzlement. They’re difficult to track since managers give credits for a variety of reasons.

Employees who are too eager or never want to have auctions. Basically, these embezzlers are taking money from customers who are often required to pay in cash.

A disorganized office. Employees may just excuse missing contracts and mystery space as errors because they’re “so busy,” “under staffed,” or their “relief managers are idiots.”

Personal problems. This can include suspicions of marital discord, employees who love to gamble, addictions, and employees with dependents who live with them. Their personal problems put them in a situation where they’re tempted to embezzle funds from the storage property. 

Suspicious and unexplained break-ins. Some employees love to take things from customer spaces. Typically, they’ll pilfer from customers who are in lien status, but many also target current customers. If you have customer who complains about this problem, investigate everyone.

Excessively high delinquencies. Be wary of extremely high delinquencies and pay careful attention to lien-related activities. You may notice that postage at the store is low based on the number of delinquent spaces. This is because employees didn’t send delinquent notices when they were supposed to. You may find employees weren't even calling delinquent customers. Many delinquent customers make partial payments in cash, which can go directly into the embezzler’s pocket.

Employees who fail to overlock. Embezzlers commonly do not use the company's overlocking procedures for delinquent tenants. Often it’s because the customer is not really delinquent or the employee doesn’t want complaints or problems from tenants who may alert other employees or the owner.

The use of generic, manual receipt books. It’s too easy for employees to give those receipts and not put the payment in the computer or credit the customer's account. Watch for missing carbon copies in manual receipt books or more than one receipt book in the office. Do not allow employees to use the receipt book for every customer transaction before entering the payment in the computer. Ideally, avoid generic receipt books, though you may need them if your computer or the Internet goes down.

Use of both a computer and manual bookkeeping system. This may sound strange, but there are storage properties still using the aforementioned accounting systems at the same time. This is a huge red flag for embezzlement. Having two accounting systems makes it too easy to steal.

An Atmosphere of Deterrence

Just the fact that self-storage properties have little supervision leaves owners vulnerable to employee theft. Another problem is owners often give employees administrative rights in the computer, enabling them to manipulate data including credits, concessions, deletions, etc. A system of checks and balances should be in place to know when you have someone embezzling. Here are several suggestions:

  • Have a person from the home office complete a unit inventory of every storage space.
  • Inventory the merchandise for sale in the office.
  • Check deposits daily for accuracy and consistency in depositing.
  • Require employees to send a unit inventory to the home office on a weekly basis.
  • Require monthly paperwork from the manager, including the move-in and move-out ledgers accounting for all rental agreements and credit and adjustment forms

Create a policies and procedures manual for the property and give a copy to every employee. When you visit, don't hesitate to discuss procedures and how managers should be operating the store. This type of manual will also help prevent legal liability.

Every day, embezzlers create more inventive ways to steal from employers. However, if you implement internal controls and monitor software transactions, you should be able to quickly find anyone who is stealing from your self-storage facility.

Carol Mixon Krendl, an industry expert and owner of SkilCheck Services, has been involved with the self-storage industry since 1984. She’s written many articles on a variety of self-storage topics, including a quarterly newsletter on self-storage sales and customer service. Lodi, Calif.-based SkilCheck provides customized training seminars, educational products and mystery shopping. For more information, call 800.374.7545; visit www.skilcheck.com .