Why Is Employee Theft Common in Self Storage?
Many self-storage owners, real estate developers, professionals and entrepreneurs are not interested in overseeing the asset, much less monitoring day-to-day operations at the property. In the self-storage business, we have very few employees who manage the store with not much supervision and very little formalized training. There are very few people working at the property and supervisors that are not trained to detect embezzlement.
Last year, I was called to conduct an audit. With a quick glance at the property’s SiteLink Management Summary, I knew the manager was committing fraud. The embezzlement was so obvious, it was scary. There were over 200 units that were categorized as ‘Complimentary’ in the management software. And, after four hours of the muggy summer weather we found another 300 plus units (some rented and some vacant) that were not even in the storage management software. Yes, it was a very big property. Okay, this is an extreme situation, but it is true that the owners had a silent partner. Thankfully, this owner and one of my amazing colleagues are now in the process of fixing all the problems at the property. My estimate of time to uncover all the issues is approximately six months. Unfortunately, it takes time lots of storage knowledge to unravel over 300 mystery units and spaces full of customer goods.
Keep in mind that as an auditor, I see a lot of embezzlement. If you are new to the business or maybe you don’t have much oversite of your property, there are just a few auditing and management questions you should be thinking about and acting upon whether you are the storage owner or a management company:
- Is a storage expert or independent person auditing your storage property regularly?
- Is there an independent person walking thru the property to verify the computer records to the actual physical occupancy monthly?
- Do you have a Policy and Procedure Manual?
- Is there a policy in place to document checks, cash, and credit cards each day?
- Are all petty cash expenditure receipts being monitored and not just simply paid?
- Are the employees accurately reporting their work hours and breaks?
- Are the employees at the property during office hours?
- Do you get complaints or bad reviews from customers saying there is no one at the property?
- Is the employee living beyond their means?
- Does the employee have any expensive habits such as spending every weekend at the nearby casino or have their huge new motor home parked on the storage property? Yes, these are actual cases.
The Fraudsters Rationalization
As I have been conducting audits for over 30 years in the self-storage industry, I believe all employees steal something. The most common theft in storage is time, office supplies, and cash payments. People who steal tend to rationalize their bad behavior. Many fraudsters say that they got caught up in bad circumstances and the opportunity to embezzle was just too tempting and easy. The theory of a prominent sociologist Donald R. Cressey proposes that there are three dimensions of fraudulent behavior of where the fraudster will feel financial pressure, have opportunities to time to commit fraud and then rationalize their behavior.
Rationalization – The individual’s mindset and justification for the theft and crime. For example, “The owner lives in a big house behind gates.”
Pressure – The motivations or reasons for people to commit fraud vary. Examples of these pressures are gambling addictions, financial distress, drug use or desire to maintain a lavish lifestyle.
Opportunity– A good example of opportunity was a resident manager couple who had worked at the same site for 20 years. When I showed up for the audit, there were two money management systems being used; a One-Write manual ledger card system and SiteLink management software. During the physical inventory, I found 70 plus spaces that were occupied, but showed vacant in Sitelink (I did find a ledger card for the cash paying customer). The resident managers were embezzling $19,000 per month. They had a brand-new Cadillac and they literally went to the casino every weekend. They justified their theft by showing me a newspaper article about the owner who donated 31 million dollars to a charity, but they hadn’t received a raise and were still making $10 per hour.
Temptation: The Fraud Triangle Cressey (1953)
Have a Thorough Hiring Process to Reduce Errors in Hiring
When we get in a hurry to hire, sometimes we skip over details:
- Criminal and civil background checks
- Credit checks
- Drug screening
- Past employment verification, especially those in the storage business.
Over the years, I have checked former addresses listed on the applicant’s background check and found storage properties that didn’t show on their list of former employers. This is common with resident managers who don’t want the potential employer to call that storage owner. Don’t be afraid to call references! Bold fraudsters believe most small storage operations don’t check new applicants’ former employers or references. This is a good reason to join and participate in storage associations and knowing your competitors. I have made employment reference calls to storage association members listed on previous addresses and found out that the person applying for the job was terminated for theft or other weird reasons. Most former employers would not be so forthcoming with why they their former employee left. Implementing the aforementioned hiring practices and checklists helps you watch for dangerous employees. Simply verify a candidate’s information and investigate/ask about gaps in employment. However, there is not any fool proof hiring method. Hire slow and fire fast!
I could go on for days with all my audit and theft stories. Oh yeah, I have. I wrote a book during COVID called Self Storage Auditing for Fraud. You can only find it on the MiniCo website or at their tradeshow booth. Not only will you learn how to audit, but I have also included lots of true stories of thefts and crafty and crazy storage managers. I will guarantee you will be scared and entertained throughout the book.