If you look at the property management industry, you’ll see that a firm with 100 units under management has $1 million in assets, possibly even $2 million or $3 million if there are a lot of properties in high rent areas. There’s incredible potential for fraud. When it happens, it could be devastating because the dollar figures can get so high. You could lose hundreds of thousands of dollars, and it’s not your money. You’ll be responsible for it if it’s taken by an employee of yours.
Talking about fraud and embezzlement is tough, but these are real possibilities within your property management company, and you need to know how to protect your business. We spoke with Alex Harleen, the CEO of Kynetic Consulting. Alex is a professional when it comes to property management accounting and he’s going to share three steps that will help you protect yourself and your business.
Have a reconciliation done correctly. Think of your business like the U.S. government; you want a separation of powers. The person doing your bookkeeping should not be the person doing your reconciliations. If that person is doing reconciliations, they have the potential to commit fraud without you finding out for a long time. We recommend that the broker does the reconciliation or hires a third-party consultant.
Control your correspondence with owners, specifically with the mail coming into your office. In almost every case of fraud, the problem isn’t immediately discovered because the person who is committing the fraud controls the correspondence with owners and the mail coming in. An account number might get changed and money starts going into the employee’s bank account instead of the business account. When notices start showing up, the person controlling the mail can be intercepting it.
Finally, control the outgoing transactions, such as checks going out of your account. The broker should have complete control of the checkbook. If anyone else has access, there is potential for fraud. Outgoing ACH transactions need the same scrutiny. The broker should have control over the account numbers being used, and it’s easy for an employee to switch account numbers if they have access. Control the account numbers and once a year, review the information to make sure it’s all correct.
These are the three best ways to protect yourself against fraud. If you have any questions for Alex Harleen, contact kyneticconsulting.com. And contact us at Fourandhalf.com if you have any questions about property management marketing, reputation, or anything else we can help you with.