Is your self storage business at risk for theft?
Is your storage business at risk for theft? Any business that handles cash or inventory is. Actually, let me restate that. ANY business is at risk of theft. If your business is self-storage, though, there are a few common ways for your employees to shave a little off the top for themselves without you noticing.
As a CPA for self-storage businesses, I’ve seen more ways for employees to “cook the books” than you’d believe, but I’m here to help you avoid being an easy target for embezzlement. Here are some basic areas in which you are probably vulnerable and how you can place a few basic internal controls to regain assurance that your employees are staying honest with you:
1. Waived late fees
Sometimes there is a valid reason to waive late fees for tenants, but a great way to pocket money during the month is to waive the late fee in the system and take the cash. One internal control to protect your business is to have a policy that NO late fees should be waived, and then review a report monthly to make sure that all employees are following the policy. However, this isn’t the most customer-friendly policy because sometimes there are special circumstances.
Do you require that your manager notate when late fees are waived? Do you also then have someone compare that notation to the storage system report? Even if your manager isn’t required to notate the reason for waiving the fee, you should still 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. You should also have someone review a report of applied credits.
2. Free units
The obvious way to steal from a self-storage business is to allow new tenants to move into the building and charge them rent, yet not record those new tenants in the storage management system. If no one ever inspects the facility, this can easily go undetected. You can help prevent against this common scam by simply having someone responsible for getting a copy of the map from the storage software and walking through your facility. They should make sure that 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 their rent. Routine inspections of your facility will also help prevent this scam.
3. Discounted units
Is the rent roll reviewed to see how much each tenant is paying for their unit? Another way for someone to line their pockets is to move tenants in with a bogus discount plan, or simply reduce their rental rate in the software but charge them the full rate. Be sure to look at the monthly reports to see how much tenants are paying and what discount plans are in effect to make sure that everything is approved.
An even smarter way to steal from you is to charge tenants MORE than the stated rental rates. If the current 10x10 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 even harder 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 difficult, since you will see the higher amount in the bank account. However, if your employees also reconcile the bank account, they can easily cover their tracks. Hiring an outside CPA will 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 make sure that inventory isn’t walking away. Comparing your monthly inventory sales to industry averages and to your business trends can help you spot if anything is off. If you are still ordering the same quantity as normal, but sales have dropped 30%, someone in your company is likely behaving suspiciously. You should also have someone conduct inventory counts on regular schedule, on certain days of the week or during certain weeks of the month. inventory orders to make sure what was order matches what was entered into the storage management software.
5. Truck Rentals
What is your policy for your moving truck? Most facilities offer a free truck for move-ins and charge 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 have someone keep track of the mileage on your trucks to make sure that this isn’t happening. Make sure that each of your policies in these five areas is spelled out plainly to help reduce your self storage businesses risk of theft.