How to Avoid Property Management Embezzlement and Overpriced Fees

Most OKC property management companies are run by honest professionals devoted to their work. But you still need to keep your eye on the ball. This article gives you three issues to keep an eye on Property Management Fraud.

I once made loan payments to a company for almost a year before I discovered my mistake. You see, I never actually took out the loan. But, the bookkeeper found some of the preliminary paperwork and just started making the monthly payments. The loan company didn’t catch the mistake, either.

Of course, they refunded my money once we pointed out the mistake. This happened because I wasn’t paying attention. It’s important to take responsibility for that type of mistake because if I’d just blamed the loan company, I would be less likely to catch a similar mistake in the future.

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Common Property Management Mistakes 

There are a few things property owners must realize in order to prevent property management embezzlement or being overcharged. You need to pay attention to make sure you aren’t overcharged by your property management company. 

Clerical Mistakes

Clerical mistakes are honest mistakes. They are not an attempt to defraud the property owner.

The only way to catch clerical mistakes is by looking closely at your monthly statement. There are some property management companies that don’t provide monthly statements. How in the world can you make certain that you aren’t being overcharged if you aren’t receiving a monthly itemized statement?

You can read more about what to look for on your monthly itemized statements from your property management company here.

Here are the main things to pay attention to:

• Check the rent and any late fees. Are those what you’d expect (i.e., consistent with the lease)?
• Is the property management fee and/or leasing fee consistent with what is allowed for in the property management agreement?
• Go over copies of the invoices line-by-line. Do the charges look justified? Were the expenditures authorized?
• Check the math. Does income minus expenses equal the bottom line on the monthly itemized statement?
• Check the deposit to your bank. Does it match the bottom line number on the monthly itemized statement?
• Were all the credits you were expecting applied to the account?

You can copy the above table and use it as a monthly checklist to evaluate your statement. It shouldn’t take very long to check the statement as long as everything is there. That includes copies of all invoices and receipts. You absolutely need those in order to verify the information on your monthly statement. If the property management company is not providing that information, you need to insist on it.

Asleep at the Wheel

Asleep at the wheel is another honest mistake. But those honest mistakes are costing you real money. Sloppy property management practices can also result in overcharging.

Is Your Property Management Company Overcharging You?

Are you being overcharged for any sort of rental maintenance? Get to know about the common issues you need to take care of. Get to know what kind of charges property managers should handle themself and landlords overcharging utilities.

You should not be Paying Utility Bills

Utility bills that you are being charged for when there is a tenant on the property who is responsible for utility bills. Did the property management company neglect to switch the utilities off after the tenant moved in? This is a good reason to make sure you are getting copies of the lease so you know when the tenant moved in.

Property Management Company Should not be Charging Late Fees

Be sure the management company isn’t just pocketing the late fees. That shouldn’t be happening.
Are your administrative fees correct? Make sure that you aren’t being charged for the type of administrative fee that is not appropriate. Sometimes management companies have minimum charges that people don’t expect. Or, they are charged for something out of the blue.

Mistakes on Invoices

Are you being charged for something that the tenant should be charged for? For example, if the tenant flushes something other than toilet paper that causes the plumbing to become clogged, the tenant is generally responsible for the plumbing bill. The property owner will likely get reimbursed for the service call once the tenant pays the property management company for the service call. Just make certain the property management company is charging the tenant for the service call.

Overcharging for Maintenance

Licensed contractors such as plumbers, electricians, and heat and air can get expensive, and there isn’t much getting around that. But you don’t always need a licensed plumber to clear a clogged drain. Or, an electrician to change out a light switch that has gone bad. A general maintenance technician can take care of those items. And, it shouldn’t be costing you $50 per hour or more for those tasks.

Too Much Vacancy

There are several problems that result in too many vacancies. All of them are caused by an “asleep at the wheel” attitude by the property management company. One could be taking too long to go from vacant property to finished make ready to listing and showing for rent. Another could be having the property listed at the wrong rental price, inadequate advertising, or not having everything done on the make-ready so the property doesn’t show well.

We have one long-term client who always has a list of questions about each statement. It definitely keeps us on our toes. And, they have caught a few things that have ended up saving them some money.

Read this guide if you want to learn more in detail about how much property managers charge.

Property Management Embezzlement

The example I gave above of my mistaken loan payments was an honest mistake.

Embezzlement, or outright stealing, is certainly not the norm. However, there are plenty of examples of property management companies that have defrauded their owners. Go through the Embezzlement Charges in Oklahoma.

• The median embezzler manages to steal $145,000, according to the Association of Certified Fraud Examiners. 22 percent of embezzlers steal $1 million or more.
• Embezzlers can keep up the con for an average of 18 months before being caught. Alternatively, a Marquet International study estimates that this could be as long as 4.8 years.

Just do a google search for “property management embezzlement”. You will see dozens of articles about property managers getting busted for embezzling money from their owners.

Note: If you’re unsatisfied with your current property manager, then also read the Notice to Terminate Property Management Agreement in OKC.

There are two primary ways to know if a property manager stealing money. Here you go:

Pocketing Income Not Reported to the Owner

The first way to commit property management embezzlement is to pocket income that is not reported to the owner. For example, they can underreport the rent they collect. This is where an audit of your books every now and then can make sense. You should be getting copies of the lease and the ledger.

In so doing, you can compare the lease to rental collections that are shown on the ledger. If there is a discrepancy, start asking questions. Compare those to what is reported on the monthly statements. This implies a monthly itemized statement is an absolute must.

Creating Bogus Invoices

A second way to commit property management embezzlement is to invent bogus expenses. For example, a company might create a bogus invoice for work that was never done. I’ll admit, this one would be harder to detect. See if there are materials charges. If so, you should be getting copies of the receipts. Do the dates on the receipts make sense? If the management company can’t produce receipts, that’s a red flag.

Receiving an itemized monthly statement is absolutely necessary so you can closely scrutinize expenses. It’s the best way to discover the embezzlement of rental property if it’s going on.

One thing you should do before hiring any property management company is to check the criminal background of the people you are talking to at the company. And, the owner of the company. 

Recommended: How to Deal with a Bad Property Management Company?

Steps to Prevent Property Management Fraud

Here are various steps to prevent yourself from embezzlement of rental property. Get to know them.

You Should Have Internal Control

As a landlord, you should keep a record of all your accounting procedures. Stay up-to-date if you hire a property manager. Get to know all the processes. All the invoices and receipts should be double-checked. Check if the invoices are valid. You need to check if the invoices are valid or not. This is when the beginning of fraud prevention starts. Internal controls and separate procedures and best practices can prevent you from property management fraud.

You Need To Make Your Own Accounting

Separate your accounting duties by yourself. Have control over the accounting. Entering all the bills, paying the invoices on time, and doing bank reconciliations. Separating those duties will help you do the task efficiently. Primarily, one person does data entry, one does bank reconciliations and another pays the bills. It is called the segregation of accounting duties. By doing this, you will get complete control over your accounts and prevent yourself from property management embezzlement. 

You Should Have Control Over Bookkeeping

I’m not advising you to be the bookkeeper. But, you can have control over it and know what’s happening with the books for your rental property. Your property manager keeps all your financial records with online software. You can ask them to create a user ID number, so you can get access to an owner portal. You can log in and study the income, expenses, and checks and run your reports anytime you want.

Frequently Asked Questions About Property Management Embezzlement