Self-storage can be the perfect breeding ground for employee fraud; operators can work hands-off, managers have a great deal of autonomy, and cash changes hands every day. History has shown that smaller storage businesses are particularly vulnerable to employee theft, and it usually takes over 18 months for a self-storage owner to catch an embezzler. Oftentimes, all a manager has to do is collect cash, waive a late fee or say they gave a discount, then manipulate the books accordingly. Renting units under the table is also quite common. These acts are not committed by career criminals. According to a 2010 Marquet Report on Embezzlement, which looked at 1,076 different incidents, only about 5 percent of major embezzlers have prior criminal histories. In fact, the average profile of an embezzler is probably much different from what you might suspect. Women Women are more likely to be embezzlers than men. In the Marquet Report, 62.7 percent of the incidents were committed by women. Sole Perpetrators The vast majority–85.6 percent–of major embezzlements are conducted by sole perpetrators. Accounting and Finance Positions Major embezzlers–63.4 percent–are usually employees with bookkeeping or finance positions. Know the Warning Signs: Your self-storage manager is:

• Living beyond their means.
• Enduring financial hardship. Be sure to conduct a credit check on all new employees.
• Exhibiting excessive control issues.
• Maintaining particularly close relationships with vendors.
• Refusing to take a vacation.
• Failing to keep assistant employees.
• Claiming to be the owner. If you rarely receive calls or complaints from your tenants, this could be a red flag. It’s vital that there is an open flow of communication between tenants and owners. Keep your own telephone number on exterior signs and websites to ensure tenants can reach you.

Takeaways and Tips:

• Always perform criminal and civil background checks on employees.
• Require employees to take a vacation. These can be an eye opener for an operator, as the employee is not there to hide his or her unlawful behavior.
• Ensure that you have an internal anti-fraud system in place. When fraud comes to an operator’s attention, it is almost always due to an insider’s tip, so make sure your employees feel safe acting as whistleblowers.
• Never use signature stamps.
• If you do catch an embezzler, contact an attorney immediately.
• Hire an independent CPA firm to audit your business every year.
• Maintain a positive work environment. Employees who are ignored, under-appreciated or underpaid are much more likely to commit fraud.

Auditing Services If you collect rent on the first of every month, the 15 is arguably the most opportune time to conduct an audit; by mid-month, the busy payment period is over and all delinquencies are settled. There are auditors who focus solely on the self-storage industry. Lodi, CA based Skilcheck Services has been providing auditing services for the industry for the last 25 years. Among other services, storage auditing firms review facilities’ lien sale procedures and check auction files for errors and compliance with state law. Auditors scan facilities’ computers for unauthorized and duplicate software, and they compare current unit inventory numbers to rent rolls and vacant spots. By looking at computer records and rental agreements, auditors are able to ascertain the integrity of bookkeeping. Not only do storage audits help prevent employee theft, but they also increase operational efficiency and ensure that your managers know your policies and procedures. If you have any questions or concerns about embezzlement or any other issues feel free to call me or check out my website TheSelfStorageCPA.com Jerry Jones, CPA, aPC The Self Storage CPA 4600 Kietzke Lane, Suite E-148 Reno, NV  89502 775-828-0767 (o) 775-348-9518 (f) www.theselfstoragecpa.com]]>