I started working in the banking industry in early 1968 (50 years next year!), have been a CA real estate licensee since 1980, and have served as a compliance consultant for other brokers since 1994. In all of those years, the one thing that has not changed has been the frequency of embezzlement that I’ve observed or found out about having being done by staff and employees. The main thing that has changed is the amount of the losses.

The first one I saw (in the early 1970s) was a fellow bank employee who stole about $22,000 in quarters (yes, quarters). She was sentenced to a year in prison, made to pay restitution, banned from working at a bank or in any position that involved access to money for life, and five years HARD probation.

Today I see thefts of between $250,000 and a million dollars where the penalty (IF ANY!) is probation, maybe a few months in jail (MAYBE!), no restitution, and then they go out and steal from the next employer. A recent case involved an employee who stole $180,000 from one employer and, once that loss was discovered (brought to the owner’s attention by a very observant new, young employee), they found that the thief had used a stolen identity to apply for the job in the first place due to the fact that she had stolen $900,000 from her previous employer. She had just been released from an 18 month imprisonment when she used the false identity to apply for the most current job. But wait, there’s more! She stole the $900,000 in part to pay restitution for the $250,000 she had stolen from employer number three. I swear I can’t make this stuff up!

I’ve told you about the employee who stole hundreds of thousands and committed suicide during the CalBRE audit, the trusted co-owner who took $329,000 (and disappeared before the auditor arrived) and the Santa Maria property manager (salesperson licensee) who stole around $275,000. The latter recently pled out (after over 2 years of delays) and will spend one year in prison but NO restitution (the broker was left having to repay everything and face the penalties from the CalBRE, while the thief surrendered her license and got a “country club prison” vacation for a year).

Last year the CalBRE conducted 590 audits and discovered over $13 MILLION dollars missing from trust accounts. Can you imagine what they would find if they could audit every single company, every year?

The only way you can protect yourself is to check, double-check and triple-check any trust accounts (or general accounts) that you have. NEVER let the same person who deposits the checks and writes the checks perform the bank reconciliations! ALWAYS have the bank MAIL the monthly statement to the responsible broker. NEVER accept a copy of the bank statement from anyone. Make a resolution that in 2017 you will hire competent outside professionals to reconcile and review every single account, every single month.

The following checks and balances should be instituted immediately to help you forestall the nightmare of employee theft:

    • Broker should receive bank statement directly from the bank.
    • Broker should receive copies of the fronts AND backs of checks directly from the bank.
    • Broker should review the reconciliation carefully and sign off on it each month.
    • Broker should question any “Deposits in Transit.”
    • Broker should monitor any cash transactions and trace them through to the bank.
    • Broker should question old uncleared checks and have them resolved by escheatment or reissuance.

Other areas of concern that need to be resolved:

        • Are there uncleared ACH disbursements? Were they ever submitted to the bank?
        • What deposits have not cleared? They should not be dated more than a few days from the reconciliation date. Deposits dated earlier in the month (or previous months) indicate missing funds.
        • There should not be any “uncleared receipts.” This would indicate funds that have been recorded in the general ledger but not deposited at the bank.
            At the end of the day, it is the broker’s sole responsibility to insure that trust funds are being handled correctly. Take that responsibility seriously!

I spend a lot of time on trust accounts, but don’t forget your general accounts. They, too, can be targets of nefarious characters.
Pam Strickland is a compliance consultant who helps California Real Estate Brokers prepare for and survive CalBRE audits.  She can be reached at pam@pamstrickland.com or through her website at www.californiacomplianceconsulting.com