By Magen Smith
Any business that handles cash or inventory is at risk of theft. Actually, let me restate that. Any business is at risk of theft. If your business is self-storage, there are a few common ways in which staff can shave a little off the top for themselves without the facility owner ever noticing.
In fact, there are more ways for employees to “cook the books” than you’d believe. It’s up to you, the owner, to avoid becoming an easy target for embezzlement. Here are some basic areas in which you are probably vulnerable and some simple internal controls you can put in place to regain assurance that employees are staying honest.
Waived Late Fees
Sometimes there’s a valid reason to waive a tenant’s late fees. However, it can also be an opportunity for an employee to steal by waiving the fee in the management software, then pocketing the cash. An employee who does this regularly is building a nice cash flow.
One internal control to protect your business is to institute a policy that late fees are never waived. However, this isn’t the most customer-friendly rule because sometimes there are special circumstances that warrant a waived fee.
Do you require your manager to note when fees are waived? Do you also then have someone compare that notation to the management-software reports? Even if your manager isn’t required to note the reason for waiving a fee, you should review a report of all waived fees.
Another twist on the late-fee scam is to charge the tenant a late fee and immediately issue a credit to offset it. As such, you should also review a report of applied credits.
Another obvious way to steal from a self-storage business is to allow new tenants to move in, charge them rent, and not record them in the management software. If no one ever inspects the facility, this can easily go undetected. You can prevent this common scam by conducting regular audits. Make sure rented units in the software are actually rented on site and that all units are being handled correctly.
A twist on this scam is for an employee to move tenants out of the system before they have actually moved out of the facility, while continuing to pocket the rent. Routine inspections of your facility can prevent this con as well.
Do you review the rent roll to see how much each tenant is paying for his unit? Another way for someone to line their pockets is to move tenants in with a bogus discount or reduce the rental rate in the software system but charge them the full rate in cash. Look at the monthly reports to see how much tenants are paying and what discounts are in effect.
An even smarter way to steal from you is to charge tenants more than the stated rental rates. If the current 10-by-10 rate is $99, your manager may be renting it for $109 and pocketing the difference. Having a policy that encourages credit cards will make these types of schemes difficult to pull off. It’s easy to change rental rates when people are paying cash, but paying with a check or credit card makes it tougher.
If your employees are in charge of deposits and reconciling the bank account, they can easily cover their tracks. Hiring an outside CPA can help you catch subtle discrepancies in the bank account that you might not otherwise notice.
Do you sell locks, boxes and other moving supplies? The inventory should be closely watched to ensure it isn’t walking away. Comparing your monthly sales to industry averages and your business trends can help you spot if something is off. If you’re still ordering the same quantity as normal but sales have dropped 30 percent, someone is likely behaving suspiciously. Conduct inventory counts regularlyfor example, on a set day each week or monthto ensure what was ordered matches what was entered into the management software.
Most facilities offer a free truck for move-ins and charge a fee to use it for move-outs. If this policy isn’t written where tenants can see it, your employees can easily charge for move-ins and pocket the cash. You should also keep track of the mileage on your trucks to make sure this isn’t happening.
These are just a handful of ways self-storage employees might steal from their employer. While the majority of managers are honest and hard-working, you’d be wise to have written policies and protocols in place to minimize potential theft at your self-storage facility.
Magen Smith is a former self-storage manager turned certified public accountant (CPA). Her company, Magen Smith CPA LLC, helps storage operators understand the financial side of their business. Services include monthly financial management, simplifying bill-paying functions, revenue management and strategy. For more information, e-mail email@example.com; visit www.selfstorageCPA.com.