$1,000 gone missing...
So here's the story of the missing $1000…
I work currently for a property management company and we have around 300 single family units. You can imagine that the first of every month is crazy with people bringing in their rental payments and not only that but it means we have lots of cash, money orders, and checks in our office, not necessarily a good thing.
OUR PROCESS
1. The front desk person takes the money and counts it on the front counter right in front of the tenant so the amount is agreed upon. He then writes a receipt and gives it to the tenant.
2. He places the tender in an envelope and seals it. On the front of the envelope he writes the tenant's name, what property address it was for, the date, the amount paid and signs his name as the one who accepted it.
3. He then places that in a drawer that has a mail slot in it. This drawer is locked and only two people in the office have the keys, the owner and the book keeper.
4. The book keeper takes the money out and compares the amount of the tender to the amount written on the front of the envelope. If they are the same amount he then enters it into our system and it is tracked from there (Appfolio is our rental management software). He then shreds the envelope.
5. The moneies are all compiled and a deposit is made.
WHAT HAPPENED?
In April a tenant came in to pay their rent. She had received some extra money so she decided to pay for three months of rent ($650*3 months = $1950). She paid $1950 that day ($1000 Money Order, $500 Money Order and $450 Cash) and she has a receipt from our office that shows that's what she paid and we have a copy in our receipt book. Somehow what got entered into our system was simply the $500 money order and $450 cash = $950.
This month, June, is month three and she received a notice from our company that her whole rent was not paid in May and nothing in June, which of course is not correct.
We have no idea what happened to the $1000 money order. You might think, "Well obviously one of them must have stolen it." The thing is that with the help of the tenant, we have tracked down the money order number that she received from Wal-Mart. We then contacted Money Gram, the money order issuer, and that $1000 money order has never been processed on their end. We can make a claim with Money Gram and it is possible that we can still get the $1000 but it will take 60 days before we will know for sure.
WHAT WENT WRONG?
1. The front desk guy, by his own admission, says that sometimes when it is crazy up front he takes the tender and puts it in his top drawer to help the next tenant in line. Could it have gotten in a file or fallen down somewhere? We've turned the office upside down and no sign of it. He obviously has been told to never do this again. It goes directly into and envelope and into the drawer.
2. Did the book keeper misread the amount as only $950 instead of $1950 and miss the other $1000 money order? Could it have been accidentally shredded?
3. Some other plausible explanation?????
WHAT I WANT TO KNOW
How do you or your company handle taking tenant money?
What are the systems or processes that you use?
What improvements to our systems should we make?
Let me know your thoughts.
I will definitely check out the PayNearMe service. Thanks for the suggestion.
Originally posted by @Stone Teran:
Originally posted by @Sue K.:I think your receptionist has that money order and he was waiting to see if he could cash it.
I think you need to write him up. If you end up having to fire him, you don't want the ding on your unemployment insurance, if he tries to say getting fired wasn't for cause.
And be sure and write up that he admitted to shoving money into his drawer against policy, and get him to sign it.
You lack proof.
I'm a certified fraud examiner and unfortunately lots of cases end up like this where all but 2-3 scenarios have been eliminated.
Aaron has good controls and they performed a good investigation. The uncashed $1,000 money order tells me it got lost or shredded and neither of the employees stole it.
What I meant was, to write him up for how he handles the payments. He admitted he doesn't follow protocol, and shoves payments in a drawer. He can sure be written up for this.
You don't need proof to fire him for not following protocol. So, you write him up now. And see if you need to write him up again. If not, great. If yes, you already have written him up once.
Your opinion is he didn't steal it. My opinion is that he did. I think cash and money orders are too big a temptation for people - especially people who shove them into the drawer. When I was a teenager, there was someone who was fired from the fabric store I worked in for behaving exactly like this. She was supposedly too busy to properly take care of each transaction, and shoved a bunch of payments in a drawer. Yep, she was finally caught stealing.
Maybe he's innocent of theft, but he is not innocent of breaking protocol and shoving money into a drawer.
@Aaron Wyssmann, you have it right. the M.O is in the shredder!
I second the suggestion to use www.erentpayment.com or paynearme. I would NEVER accept cash directly as this makes you a huge target for robbery. By using one of the other options, you can't be accused of not accepting cash either. A few years back, a local landlord who would go around town collecting rents on the 1'st every month was shot & robbed of thousands.
I once had a check show up five months later behind a boot along the baseboard of my office. Some times crazy things happen.
I had a good relationship with the tenant and no one accused anyone of bad intent.
I know it is somewhat risky, but for my cash tenants...only 1 thankfully....I have a seperate checking account set up....not my main operating account.....where they can walk cash to a bank and text or email me that they made the payment. We verify funds, move the money over to the operating and log the payment in our online system...RentPost.
I refuse to accept cash.
The good news is that no one stole the money order. That means you don't have integrity issues. But something that really sticks out as a risk for your system is that your book keeper has access to money. That is a huge risk to any business. If the person who has access money also documents the money then issues will arise. You are granting access to money and the ability to alter the books to conceal the crime. A book keeper should never touch money, but instead touch receipts. The smaller the business the higher the risk of fraud.
For ideas on protecting your business from fraud check out articles written by Joseph Wells.
@Sue K. I have heard of others doing the very same thing you are talking about in setting up a separate checking account to deposit cash in. I can see how that can work for an investor will a smaller number of properties but with the close to 300 we manage, I'm not sure how that would work. I'll have to think through the logistic of all that. I do like the idea or something similar.
@Stone Teran We have a CFE on the boards! Awesome - I'm going for that cert eventually :)
I have some (minor) experience in auditing internal controls, and the big red flag that I see for @Aaron Wyssmann is control #4:
The book keeper takes the money out and compares the amount of the tender to the amount written on the front of the envelope. If they are the same amount he then enters it into our system and it is tracked from there (Appfolio is our rental management software). He then shreds the envelope.
To have effective controls, you need effective segregation of duties. Specifically, you should separate the custody of assets, authorization of transactions of those assets, and reporting of the transactions.
As I see it, control #4 does not effectively segregate custody and reporting duties. Additionally, the bookkeeper shreds the documentation after taking the money out of that documentation and reporting it - see how this is messed up?
Should you shred the documentation? Yes, but the question is WHO should shred the documentation. I assume the bookkeeper also performs bank reconciliations which only further adds to the problem of not segregating custody and reporting duties.
If I were you, I'd hire a CPA, CFE, auditor, etc. to review your internal controls and provide recommendations on how to improve those controls.
No, none of the above is relevant to your problem, speaking as an accountant. the only thing that possibly wasn't done and should have been done is the bank account should have been reconciled. April's bank statement should have been reconciled by May 15th. If it had been you would have found the error much sooner.
Originally posted by @Aaron Wyssmann:
@Chris Simmons I have heard of others doing the very same thing you are talking about in setting up a separate checking account to deposit cash in. I can see how that can work for an investor will a smaller number of properties but with the close to 300 we manage, I'm not sure how that would work. I'll have to think through the logistic of all that. I do like the idea or something similar.
Aaron:
Depending upon your bank, you may be able to take this approach - it depends on the information the bank records with a deposit transaction.
We give each of our tenants who pay their rent in cash a deposit-only bank card; each card has a unique card number. With this card, the tenant can deposit her/his rent via the ATM or in the bank at a teller. The card number (last 8 digits) are recorded in the deposit transaction, so we know who made which deposit.
@Leslie A. that is exactly the problem. The book keeper only thought that there was $950 that was paid. He entered that into our system and that was what was actually deposited. So the account reconciled perfectly. The only reason it has been caught is that the tenant got a late payment notice.
@Roy N. I have never heard of this type transaction with the bank but if that can be done here then we can definitely utilize this type of process for sure. Thanks for the heads up.
@aaron wyssmann
One small change I might make would be to have the book keeper start by counting the payments and making a note of the total. Then compare the total to the total that clerk reports. If and when there is a discrepancy the bookkeeper can go back and review the details of each individual payment.
When someone is looking for a certain amount they often see it. Whether the 1000 was in the envelope and shredded or the clerk pocketed it and it wasn't in the envelope, the bookkeeper should've noticed it when that months receipts were processed. The independent totaling of the receipts prior to shredding the envelopes would be helpful.
right but part of the reconciling process should be to have the person who writes the receipts match them up with the bank statement then have the bookkeeper match bank statement up to her records.
Originally posted by @Leslie A.:
No, none of the above is relevant to your problem, speaking as an accountant. the only thing that possibly wasn't done and should have been done is the bank account should have been reconciled. April's bank statement should have been reconciled by May 15th. If it had been you would have found the error much sooner.
I hope you weren't saying that my advice is not relevant to the problem. The OP asked for advice and I identified a weak internal control - the bookkeeper has custody of assets and recordkeeping authorization. A lack of segregation of duties, such as that, increases the chances of fraud occurring and going undetected.
True, a proper bank rec would have identified the problem, but it seems that the bookkeeper is running the rec and no one is running a rec behind him. Another weak control that ultimately stems from the bookkeeper taking tender, shredding receipts, and recording transactions.
No, no. I'm sorry. All the advice was valuable just wasn't the most direct solution to the problem. Plus I didn't see your post. I had written it earlier but not posted it. So, sorry!!!!'
Originally posted by @Aaron Wyssmann:
We definitely have tenants that don't have bank accounts and can not write a check, therefore we have to accept cash or possibly force only money orders. The issue here isn't that cash disappeared but a money order. The perfect scenario is not to take it and force another way but for us that just hasn't seemed very feasible for our tenants.
I completely agree with your statements. My boss has been in business for over 25 years and this is the first time anything like this has ever happened. It's like the perfect storm.
Seriously? 25 years in the rental business and never had a check or payment go missing or not reconcile? A zero margin of error isn't reasonable to expect of anyone IMO. I don't understand why this is such a big deal. The missing portion of the payment is in the form of a MO with available receipt, not cash. It's trackable and reimbursable. With 300 units to manage how do you even have time to worry about it, let alone write a long post about it. :)
Even with a no-cash policy and online payment systems you WILL run into error. Online checking, online payments and direct deposit have not eliminated error.