Five Tips to Help Prevent Fraud and Embezzlement at the Site Level
In more than 35 years in the apartment industry, Mike Clark knows that he’s been a victim of internal, identifiable criminal embezzlement and fraud at the site level seven times, to the tune of tens of thousands of dollars. And he’s pretty sure there were other times that employees have stolen from his company that were never discovered.
Clark, the newly installed president of the Texas Apartment Association and Principal and Owner of Alpha-Barnes Real Estate Services, recalls one instance where he believed an employee bilked his company out of more than $60,000 before moving on. He’s also convinced the woman is still out there taking from another organization.
Another used disappearing ink to write the company name on rent checks that didn’t list the payee, and rewrote her name when the ink faded and cashed the checks. Then there was the maintenance worker who dug up and stole shrubs.
“I can’t make this stuff up,” said Clark. “This stuff really happens.”
Business Fraud is Big Business
According to the Statistic Brain Research Institute (SBRI), employees, mostly through a company account or cash register, steal about $50 billion from U.S. businesses annually. Also, PricewaterhouseCoopers (PwC) reports in its 2014 Global Economic Crime survey that 37 percent of respondents worldwide had experienced losses – some that even include asset misappropriation, bribery and corruption – about 3 percent more than the company’s 2011 survey.
At April’s TAA Education Conference & Lone Star Expo in Dallas, Clark and TAA General Counsel John Sepehri offered insights from personal experience and current business practices about how to identify and prevent fraud and embezzlement at the site level.
These types of crimes usually don’t happen under a corner street light on a foggy night. Many times, they say, it’s in broad daylight, right under the manager’s nose. It’s sometimes as obvious as an employee taking money out of petty cash. But instances of more deceptive and creative thefts of diverting rent and security deposits, forgery, stealing supplies and misusing credits and discounts are common.
Clark believes that many who commit fraud and embezzlement are “pros” but he’s found that even his best, long-time employees can steal. Usually, a personal crisis like a marriage issue, spouse’s unemployment or medical problem drives someone to reach into company coffers.
The good news is that the thieves often eventually fly onto the radar by going back to the well too many times.
“The trend is for people to take a little bit, and you can rely on fact they will get greedier every time they take it,” he told attendees. “It’s very easy for a manager to pilfer $20 a month out of petty cash. The problem is they will take $20 this month, then they’ll want to take $50. And then they’ll take $100 and $500. The good news is it’s progressively worse, and as you go through the process you can identify it.”
Here are some things that Clark and Sepehri say that apartment properties should take into considering when dealing with and trying to prevent fraud and embezzlement.
Don’t Assume an Employee is Incapable of Being Dishonest
First, don’t believe that fraud or embezzlement (or both) can’t happen to your property. Sepehri says if you don’t think it’s happening to you, it could very well be or could happen in the future. Even the most trusted, longest-tenured employees might be ripping off the property without you knowing.
Put a Process in Place to Identify Fraud and Embezzlement
Having a process in place to prevent fraud and embezzlement can include routine inventory and financial account system checks, surprise audits, separating functions with people who have access to inventory and equipment, and simply letting employees know that there is a process in place to prevent – and discover – illegal activity.
Perform Due Diligence when Suspecting Employee Theft
When suspecting that an employee is taking from the company, get your ducks in a row. Before confronting the worker, confidentially and discreetly conduct a thorough and consistent investigation. Keep privacy laws and considerations in mind when investigating, and document everything.
Avoid a Threatening Approach when Confronting the Suspect
When confronting an employee, be wary of appearing threatening or intimidating. This could trigger tort claims like intentional infliction of emotional distress and false imprisonment.
“You really want to be reasonable in tone or presentation,” said Sepehri. “You‘ve got to get the facts, but don’t be overly aggressive and hostile in your manner.”
Consider Whether Pursuing Charges is Worthwhile
Consider the possible costs and benefits of reporting employee misconduct to the authorities, including whether it will hinder recovery of lost sums or result in sensitive business information being revealed.
Sepehri reminds that prosecuting an employee is a pubic action, which could open the possibility that some things are said on public record that may not make pursuing the charge worth it.
Both Clark and Sepehri agree that creating a proactive approach to preventing fraud and embezzlement is worthwhile. You might be surprised, Clark says, to find out just how much money and goods are being taken from the property, even if it means investing money to prove a theft.
“If you suspect something, don’t be afraid to look outside the box,” he said. “If you’re suspicious enough to spend the money, you are going to be shocked by what you get back.”
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