A Self-Storage Owner's Guide to Detecting and Avoiding Employee Theft

By Pamela Alton

When I was first approached to write this article, it took some thought. First, the vast majority of self-storage managers out there are honest, hard-working, give-it-their-all type of people. Second, I didn’t want to write an article teaching otherwise decent managers how to steal.

Unfortunately, there are those few in the storage industry who would take advantage of their unique employment opportunity. Unlike many businesses where there are numerous employees working closely with a supervisor on a day-to-day basis, most self-storage facilities only employ a handful of people who are largely unsupervised. If they’re prone to illegal activity, they have a lot of time to commit those less-than-honorable acts.

To help the owners out there prevent this type of activity from happening, I’m going to cover some of the ways I’ve seen managers steal over the years as well as provide tips for preventing this behavior.

Petty Cash and Cash Drawer

Many facilities have a petty-cash fund for managers to use for things like mailing late letters, picking up a new broom at the local hardware store, purchasing cleaning supplies, etc. Once in a while, a manager will borrow some of those funds to order a pizza, for example, with the full intention of paying it back. But once this habit has been established, it becomes easier to "borrow" again and again, at larger and larger amounts.

It’s important that your manager sign a document accepting responsibility for the facility cash drawer and petty cash and that he fully understands these funds aren’t his personal ATM. He should know that borrowing from these funds for personal use could be cause for termination. All petty-cash transactions should be documented with receipts and sent regularly to the home office for auditing and reimbursement. When a site visit is conducted, petty cash and drawer funds should be counted.

Security Deposits

Security-deposit refunds can be another theft opportunity, as some properties allow the manager to return deposits to tenants in the form of cash. The vacating tenant simply signs for the returned deposit, and the manager takes the funds from the cash drawer or petty cash. But how often does a manager do his morning rounds only to find a tenant has vacated in the night? Often! Then all he has to do is go back to the office, sign the refund slip and claim the deposit for himself.

If you take a security deposit from tenants, I suggest all refunds be sent from the home office in the form of a check to the customer’s last known address. It’s possible the tenant will have moved and the check will be returned to you, but it’s better than creating temptation for an otherwise good manager.

Late Fees

It’s common for a manager to waive a tenant late fee, especially if the fee was applied last night and the tenant comes in to pay today. If I see this happening frequently and the late fees being waived are mostly for cash payers, this raises a red flag. It’s just too easy for the manager to credit the late fee in the computer and pocket the cash. The best way to avoid this temptation is to have the tenant sign a waive-fee form, which the manager then sends to the head office on a monthly basis, accounting for any fees waived.

Merchandise Sales

Most facilities sell boxes, locks, packing supplies, etc. These items are often purchased by tenants at the time of move-in, but sometimes customers come in just to pick up a few items. I’ve seen locks being sold for cash and the money pocketed by the manager. Counting all merchandise and tracking inventory on a monthly basis sounds simple, and yet it isn’t always done. Enforce this practice at your facility to avoid skimming from merchandise sales.

Move-In Discounts

It’s common for self-storage facilities to offer a move-in special, such as pay two months rent and get the third month free. The manager, however, doesn’t always tell his customers about this offer. If a new tenant moves in and pays cash for three months or longer, the manager can apply the discount in the computer and pocket the cash for the free month. All the tenant sees is that he’s paid for the duration.

The manager should always document any applied discounts, and they should be signed for by both the manager and the customer. Then the manager should submit all documentation to the home office monthly.

Software Demo

A lot of self-storage management software has a built-in tutorial or demo that helps the manager learn the program. It looks and feels just like the normal program, but doesn’t actually impact the facility data. The user can practice move-ins and move-outs, payments, transfers, etc. I’ve seen managers use this demo with cash-paying customers to simulate an actual rental and pocket the cash.

If your software includes a demo, make sure the information it displays—facility name, unit numbers, rates, etc.—can’t be altered by the manager to mimic a true transaction. Also check your management-software reports regularly to ensure there have been no manual changes to your available units or square footage.

Lien Sales

Not all theft involves cash. Some managers have been allowed to inventory or auction lien-sale units without supervision. Since they’re usually in contact with these delinquent tenants during the lien process, they know if a customer has abandoned his unit or can't be contacted anymore. In this case, he can simply go into the unit, take what he wants and sell the items elsewhere, like eBay or Craigslist. Alternatively, if the manager is allowed to conduct the auction on his own without an auctioneer or supervisor present, he can simply lie about the amount of the sale and pocket a portion of the cash.

A simple solution is to always have a supervisor present for all inventory of lien-sale units. Once the inventory is complete, place a numbered seal on the unit and note it in the tenant file. At the time of auction, check to ensure the seal number hasn't changed. Always use an auctioneer for the actual sale. Finally, any deals made with delinquent tenants to pay a certain amount and vacate the unit prior to auction should be documented and signed by the tenant, since these move-out deals are always paid in cash.

Unit Deletions and Size Changes

I’ve seen managers do a couple of things with units in the facility management software when dealing with cash-paying customers. They can delete a unit from inventory entirely, even though there’s a renter in the unit, and pocket the cash. Alternatively, they can downgrade the size—for example from a 10-by-20 to 5-by-5—charging the customer for the larger size, applying the rent for the smaller size and pocketing the difference. They can also make reverse changes to get discounts or free rent for friends.

This is why it’s important for an owner to always know what his computer reports contain, as well as how to read and interpret the reports on a monthly basis. If you see the number of units or square footage change, then investigate. There may be a problem!

Pay Attention

These are just some of the theft techniques I’ve seen managers use over the years, and there are many other more sophisticated ways. Why on earth would a manager steal in the first place? There are any number of reasons:

• He gets in a financial bind.
• He “borrowed” from the facility once or twice and got away with it.
• He has problems with drugs, alcohol or gambling.
• He has family issues.
• He simply doesn’t make enough money to make ends meet.
• He feels he’s been treated unfairly by his employer.
• He has an “I work hard, so I deserve it” attitude.
• He simply doesn’t know better.

What can you do to protect your business from theft? Being aware of what goes on at your facility is a great start! If your manager is driving a nicer car than yours, takes exotic vacations, and buys a lot of expensive toys and electronics, and yet you see your income dropping, these should be red flags.

Know your management software inside and out. Learn and understand how it works, what the reports are, and what information they contain. If you see changes that look “off,” then investigate. If you use a property-management company, don't assume it’s checking and watching what’s going on, either. Even third-party management firms experience theft. Remember the old saying, "Two eyes are better than one."

Fix the Problem

What happens if you do suspect manager of theft? First, I suggest you hire a third-party consultant to go through the facility records, gather information and make an informed assessment. If a manager is stealing from you, it’s probably not a large enough amount for the local authorities to prosecute. Anything less than $50,000 or $100,000 isn’t worth the District Attorney's time and effort. It’s best to simply terminate the employee and "clean house" so your next hire won’t learn the former manager’s methods.

Remember, this is your investment—you must take responsibility for its operation, even if you use a third-party management company. Set policies to deter theft, including standards and controls for late fees, move-in specials, inventory sales, lien sales, etc. Hire an outside company to conduct regular audits at your facilities, not only for your peace of mind, but to let employees know the operation is being regularly monitored. Finally, pay your managers well, respect them and pat them on the back for a job well done. This isn’t only appreciated by the staff, it shows you’re paying attention to the day-to-day operation of the facility.