The one thing nearly all self-storage owners have in common is a lack of time. They’re often so busy overseeing the top-level aspects of their business that it can be easy to lose sight of what’s happening at the facility level, which can leave them vulnerable to employee theft.
The suggestion that one of their managers could be stealing is almost insulting to some owners. They think, “He’s been working with me for years and I trust him emphatically. I can’t believe anything could be wrong.” Unfortunately, embezzlement can happen at any facility, and it can severely damage the business. Consider the following guidelines to prevent and detect employee theft.
Establish Good Policies
Most storage managers are trustworthy and would never steal from their employer. However, as the saying goes, “Trust, but verify.” Every owner or supervisor should complete a regular financial audit of his facility; but first, you need solid policies and procedures in place.
One of your most important procedures is the one that dictates the way deposits and cash are handled. Deposits should be delivered to the bank daily or as close to daily as possible. Each deposit slip should include a date, money breakdown and time stamp from the bank, which should match up with the end-of-day report generated from your management software. Copies should be forwarded to the accounting team, who should verify the reports and deposits to ensure they match. If there are any discrepancies, a valid reason is necessary.
Next, verify the money in the cash drawer and petty-cash accounts. If your cash drawer starts each day with $200, then at the end of the day, there should be $200 in the drawer plus the day’s deposits. If your property has a petty-cash fund of $200, there should be a mix of cash, receipts or vendor invoices that equal $200.
Remember, petty cash is to be used for approved facility expenses. All receipts or invoices should be in line with your stated policies and procedures. As with day-to-day deposits, there should be a valid reason for any variances.
Conduct a Financial Audit
The most basic way embezzlement takes place is directly from cash sources. Removing funds from cash drawers and petty cash or altering deposits are the easiest ways to steal from a company directly, but they’re also the most obvious places to check when conducting a financial audit. Experienced self-storage managers will embezzle in ways you won’t catch right away. A complete audit will check cash but also the rental side of the equation, including on facility discounts and write-offs.
We all need to accept a hard truth: A full-time manager can spend many hours each week using, testing and learning how to circumvent a property’s management software. There isn’t a program available that can’t be tricked with enough time, patience and ingenuity.
Typically, embezzling behavior starts with some kind of fee. Most storage facilities collect late fees, lien fees, administration fees, lock-cutting fees, etc. These are small amounts most owners or supervisors wouldn’t notice right away, if at all, and they can be targets for someone who understands how your software operates. It’s extremely easy for a manager to accept a cash payment from a customer and then write off the amount or issue a “credit.” The fee disappears into the abyss with a couple mouse clicks.
To combat this, set limits on discounts and write-offs. Review each individually and, if you have a question about it, ask. Once a manager gains a certain amount of confidence, the embezzlement often moves to full rental payments, which can total thousands of dollars per month in lost revenue.
Make Regular Site Visits and Be Vigilant
Vigilance and tracking are the most important tools in the fight against embezzlement. The best way to stop employee theft is to prevent it in the first place. This means being diligent.
Make regular site visits. During each visit, pull a current rent roll from your management software and complete a physical walk-through. Make sure all the units are locked. Those that are assigned to customers should have a customer lock. Those that are classified as vacant should be secured with a facility lock. If there are any variances, such as a vacant unit secured with a customer lock, then dig deeper.
Take the time to open all vacant units. Check to see if they’re truly vacant or if someone, possibly a member of your staff, is using the unit off the books.
Also, regularly check your customer leases. Every unit should have a contract, even one assigned to your staff. It’s very easy to “move in” a customer without ever having the person complete a lease and have him pay with cash in exchange for a discount. With no record in the computer, those funds will never be counted in your software.
Finally, check the retail inventory during your visit. Count all the merchandise and compare those counts to the product inventory listed in the computer. There should be valid reasons for any variances.
Watch for Red Flags
When it comes to your employees, watch for red flags. For example, a manager who embezzles rarely wants to take time off because it upsets the system. If one of his cash-paying customers were to visit the office in his absence and wasn’t found in the management software, another employee may start to ask questions.
Be aware of your manager’s lifestyle. If you notice sudden acquisitions or improvements that don’t necessarily fit within his pay grade, it could be a sign that you have problem. Now that doesn’t mean a storage manager can’t have nice things or these items weren’t acquired legitimately, but pay attention to scenarios that seem out of place.
A sudden drop in revenue or a significant increase in discounts and write-offs could also point to an issue. If you suspect something, take the time to make a few customer calls. It takes about three minutes to contact a tenant and ask if he received a rental discount or made a payment that was never entered into the management system.
What should you do if you discover a case of embezzlement? First, document everything. Next, keep a solid timeline that corresponds with the irregularities. Third, have someone verify the documentation you’ve collected. Finally, decide how you want to handle the situation. Termination is usually in order, with the possibility of criminal prosecution; but each owner has make that decision on his own.
The storage industry offers advanced management, accounting and security software. Use this technology to your advantage and let the machines help you. Remember, your business is only as strong as the systems you set up to protect it.
Matthew Van Horn is co-founder of 3 Mile Domination Self Storage Services, a full-service operations company specializing in self-storage management, marketing and consulting. He’s also co-author of “Self Storage Domination.” To speak with him about your self-storage operations, schedule a free 60-minute strategy session at www.3miledomination.com.