However, Resident shall be obligated for the costs of such repairs, replacements, and related services if the need for such repairs, replacements, and related services results from the negligence or misuse by Resident, other residents of the Property, or Resident’s agents, servants, employees, invitees, or family members, or if the repair is less than One-Hundred Dollars ($100.00).

I will say that the "underwriter" is nothing more than a deal finder/ money cruncher so I apologize if that's the term you're possibly misusing.  

If you're not an ethical Investor, then you can misuse this strategy just as you can misuse almost any other real estate strategy. 

Sometimes people misuse it, even though with high W2 income, 1099 income, but this can be an "audit lottery" to play.

If so, what types of controls are put in place to prevent misuse of funds or outright embezzlement?

At first, I thought this was an April Fool's article because how can you misuse a hairdryer?

Maintaining logs is highly important as the IRS scrutinize STR/LTR for any shelter and misuse.

But let's not confuse misuse with the tool itself being "very bad advice." 

This incentivizes the GP to stay engaged.Lenders can pursue guarantor for losses: Even with non-recourse loans, bridge lenders often require the GP to sign a limited guarantee to be liable for lender losses from things like misuse of rents or failure to maintain the property.

Drain-and-fill can get expensive, and unfortunately, guests tend to misuse the tub—candles, glitter, lotions, you name it.