Fraudulently taking money is, unfortunately, a common theft in the property management industry. How do you avoid getting scammed as an Agency Principal?

Frank (not his real name) was the accountant for a medium-sized property management company. He oversaw the financial success of the business but was not directly responsible for making payments from the company’s rental trust account. The property management administrator had this responsibility and had overseen it for many years. However, when the administrator went on leave, he left instructions on how to disburse money from their property management software for Frank. The instructions were straight forward and Frank was confident the process wouldn’t pose any difficulty.

When the time came for disbursing owner payments, Frank took his time and ran his eye through the pages listing the payments to be made. Something caught his eye. As he ran his eye down the sheet, he noticed the same bank account number a few times across multiple pages for small amounts.

As a result, it was discovered that the administrator had been inserting his bank account details against owners who had multiple properties. The amounts were small and changed often. The fraud had gone undetected for several years.

There are many stories of fraud like this in the property industry and you may know of companies it has happened to. So what precautions have you taken as an agency principal and do you know what to look for?

In the case above, the following steps could have been taken to minimise the potential for this to happen:

• Make sure that a bank account can’t be edited or added by more than one person.
• Have a second person check the change-log in your property management software at the end of each month, looking for bank account changes.
• When disbursing funds, have the second person check the payout list. 

There are some simple ways to protect yourself from fraud. Protect yourself by knowing your practices, your property management software, how to read the information and where to find it.

So where do you start? What should you be checking?

Palace, your smart property management software, has listed the most common types of fraud in property management and the vital answers on how to avoid this scamming:

1. Bonds
2. Rent Refunds
3. Changing Owner Bank Accounts
4. Setting up oneself as a Supplier and charging fake jobs
5. Unallocated or Unidentified Monies

Bonds

Some of the biggest frauds seen in property management involve bonds. This can happen in many ways. The simplest form is when the bond is not entered into your property management software, but once paid into the bank, it’s receipted into a suspense account and then moved into a fraudulent bank account.

There was a case in which someone set up a ghost account with their bank details. Bond was receipted there. Some money was taken out to actually lodge bonds and the balance was always kept positive - in case they had to refund bonds which had not been lodged. Over the years, this account washed through a lot of money.

How to stop this from happening: 

• Always record the bond number when you get the receipt from the Bond Centre.
• Run reports to show tenants who do not have a bond number recorded and question why. This is a good starting point.
• You should always be able to view a report showing what bonds are still owed.
• Match new tenants gained with the bonds paid. This should match.

Rent Refunds

It’s not uncommon to find a tenant who has left is due a refund. In addition, you may not have their bank account details or they may have left the country. This money sits in your account as owing to the tenant. There are cases when the person committing fraud, enters their bank account details against the tenant and pays the refund to themselves.

How do you chase this? 

• Make sure you know what disbursements are made daily.
• Only enable one person to enter or change bank accounts. Collect and store proof of tenant bank account details.
• If you are asked to change bank account details, get the request in writing from the client.

Creating a New Supplier and Invoicing Fake Jobs

In this case, the person committing fraud creates a new supplier with fake information and uses their own bank account details. Fake invoices are lodged against various properties. To avoid suspicion, owners and properties are selected carefully and the jobs lodged are small. The money is then removed from the property and paid to the supplier (the fraudster).

How can you find this: 

• Regularly audit your suppliers, you should know and approve of everyone on the supplier list.
• Check the supplier expenditure report. Who do you pay and how often?
• When doing disbursements, make sure you have a second person checking the payments file/report.
• Limit the number of people who can enter invoices and always make sure each invoice goes through an approval process.

Unallocated Monies 

It is not uncommon where deposits cannot be identified. This should be entered into an adjustment or unallocated area within your property management software. The best practice is to try to find the depositor/recipient and trace the money.

In some cases, these accounts can collect a lot of money. It can be tempting to pay this money out to a fraudulent account.

How can you prevent this?

• The adjustments or unallocated accounts should be audited regularly. There are rules in some countries that this money must be sent to the tax department after so many months if not claimed.
• Some companies start a new “unallocated account” each month so they can track this money easily.
• Double-check payout reports.
• Have a record of claimed money. Who is claiming the money, proof of proprietorship and the bank account details used?

This article is meant to share the very real possibility of fraud. In times of economic uncertainty, the temptation can become very real.

This is your business, your future, and it needs to be protected. You need to protect your staff and make sure they are not solely responsible for large amounts of money. Always have a second person checking. No money should ever be paid out from the bank without proper checks and balances.

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