There are three things every property owner must do in order to prevent their property management embezzlement or being overcharge. What do you need to pay attention to make sure you aren’t overcharged by your property management company?
Now, 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: 1. Clerical mistakes, 2. Asleep at the wheel, and 3. Property management embezzlement.
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 book keeper 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.
If you think it’s more a communication issue, this is a good article covering how to fix communications problems with a property management company.
And, you can read more about the communication you should expect from your property management company.
#1. 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.
#2. 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 resulting in overcharging.
Here are some common issues to watch for:
Utility bills you shouldn’t be paying for.
Utility bills that you are being charged for when there is a tenant in 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 is not charging a late fee when it’s appropriate to do so.
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 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, a 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 much vacancy. 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 how much do property managers charge
#3. 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. One article presents some worrying statistics:
- 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 article about a property managers getting busted for embezzling money from their owners.
There are two primary ways that a property managers can steal from their owners.
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 under report 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 an absolute necessary so you can closely scrutinize expenses. It’s the best way to discover property management embezzlement, 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.
In Oklahoma you can go to http://www.oscn.net. It is a free service offered by the state that has criminal records for everyone convicted of a crime going back several decades. You can search them by name.
You can also do a google search on them.
This is not an exhaustive list of ways you could potentially be defrauded.
Here is more information about how OKC Home Realty Services, LLC (dba Property Management OKC Plus) helps with Oklahoma City property management.
Frequently Asked Questions About Property Management Embezzlement and Overpriced Fees
What should you do if your property manager is not providing you with an itemized statement?
The itemized statement is absolutely critical. If they aren’t providing one every month, they either need to start doing it, or you need to find a new property management company immediately. Also, make sure the deposit they make to your bank account or check to provide to you matches up with the accounting on the statement.
What should you do if you find inconsistencies or clerical errors in the monthly itemized statement?
You need point out inconsistencies on the itemized monthly statement as soon as you find them. These communications should be done via email so you have a written record of the correspondence.
What should you do if you suspect your manager of property management embezzlement?
Step one is confront the property manager with whatever discrepancies have found. If you point out errors or oversight on the accounting and they are not addressed, or the property management company is simply not making the deposits to your bank account, contact your lawyer. Your lawyer will be the best advisor to council you on the best steps to take to remedy the situation.