Embezzlement In Property Management. Can It Happen?

Embezzlement In Property Management. Can It Happen? 

Unfortunately, it happens. Security funds, landlord reserves, rental disbursements that sit idle and rents paid in cash is as tempting to take as it gets. Property management is rife with opportunities to steal. This is true in both residential and commercial markets.

How are you as a tenant or landlord  protected? There are state regulators and laws in place to minimize this practice, but once the money is gone it's gone.

Red flags to look for 

Consistently late rental disbursements. Vendors that aren't paid or are paid after a 90 day time-frame. Stall tactics when paying bills. No replies to accounting questions when you call or email. Employees that dodge accounting questions. Phony vendor invoices for work that wasn't really done. Asking to speak with the contractor that did the work only to hear, we cant do that, that's confidential information. Getting bulk invoice costs. All estimate items need to be laid out in detail, line by line and cost by cost (including labor) if it isn't, it's padded for sure.

In general, there are two ways to improve checks and balances: (1) Separate duties so no one controls a transaction from beginning to end, and (2) Monitor. The latter is the only option in small accounting departments. Having an outside accountant perform periodic unannounced reviews of rent collections, payroll, cash, expense reimbursements and other high risk areas deters Brokers or employees from stealing by increasing the probability of being caught. It can also be effective at identifying problems early – before losses reach six figures.


Minimize risks:
You as a landlord can request that you hold the tenant security deposit in a separate bank account yourself. And whether you're searching for a property manager or currently with one, always ask to speak with their certified public accountant directly. Ask them if this company is financially sound. The CPA must respond with a yes or no.  And do this on an annual basis.

- Financial freedom is available to those who learn about it and work for it.

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