Most storage owners would like to think their employees are loyal, trustworthy, honest and dedicated to the self-storage business. Unfortunately, temptation, greed, social issues and financial pressure can put some in a position to potentially betray their employers. Even the most efficient storage facility can fall victim to employee theft.

The U.S. Chamber of Commerce reports that in the United States alone, billions of dollars vanish every year due to employee theft. Stealing is a severe threat to any facility, and it only takes one or two people to cause financial chaos. Owners should recognize the risks, deter dishonest employees from their facilities, and understand the benefits of employee-dishonesty insurance.

Theft can be committed by one employee or several. Forging and hiding receipts, pocketing loose change and stealing merchandise from the managing office are common practices. There have been reports of managers creating bogus payrolls, over-billing expenses and committing purchase fraud. Theft can even go as far as breaking into storage units and stealing tenants’ goods. Some offenders have actually taken advantage of their employment by breaking into units in the off hours and calling the police to report the crime the next morning.

So what can you do to protect yourself from employee dishonesty? Employee theft can be hard to detect, especially if the criminal is good at what he does. There are several ways to keep a closer eye on your facility and minimize the risk of theft. Start by watching out for unusual occurrences in your facility, such as discrepancies of cash amounts and missing supplies and merchandise. Take notice of your employees’ behavior. Watch for unusual working hours, poor work performance, constant complaining and defensive behavior when discussing work issues.

Know the Warning Signs:

Your self-storage manager or employee is:

  • Living beyond their means.
  • Enduring financial hardship. Be sure to conduct a credit check on all new employees.
  • Exhibiting excessive control issues.
  • Maintaining particularly close relationships with vendors.
  • Refusing to take vacation.
  • Failing to keep assistant employees.
  • Claiming to be the owner. If you rarely receive calls or complaints from your tenants, this could be a red flag.  It’s vital that there is an open flow of communication between tenants and owners.  Keep your own telephone number on exterior signs and websites to ensure tenants can reach YOU.

Implementing an anti-theft regime in your facility can also reduce your risk to exposure. Employees will be less likely steal from you if they think there is good chance of being caught. Perform regular surprise visits and audits to keep track of any merchandise or receipt problems. It’s recommended to have managers and accounting personnel take vacations so the fill-in can be used to double-check for payroll and accounting discrepancies.  Set up surveillance in key areas such as the managing office and storage areas. Not only will surveillance keep a record of events, it can also help deter theft from outside burglars. Avoid retaining tenant keys to eliminate access to tenants’ goods. Most insurance companies won’t write policies for storage owners who retain keys because of the increased risk factor.

Know who you are hiring. Some people have theft in mind from the beginning, and you should avoid hiring
these people by conducting thorough background checks and obtaining previous job references. Secure an adequate amount of employee-dishonesty insurance. Unlike those from burglary and robbery, losses due to employee dishonesty are excluded under most commercial policies. Many owners do not realize this coverage can be just as important as fire or liability insurance. Crime coverage can protect against losses from robbery, burglary, theft, embezzlement and other risks, and can be tailored to fit the size and scope of your self-storage
operation. In most cases, your business-property and liability package policy can be endorsed to provide coverage against employee dishonesty, loss of money and securities from your premises, and loss of other covered business property such as computers.

One important point to remember about employee-dishonesty claims is the act must have been committed with “manifest intent”; in other words, the loss must be the result of an unethical act, such as lying, through which the employee sought personal gain. Without manifest intent, such claims are generally disallowed.

Takeaways & Tips:

  • Always perform criminal and civil background checks on employees.
  • Require employees to take a vacation. These can be an eye opener for an operator, as the employee is not there to hide his or her unlawful behavior.
  • Ensure that you have an internal anti-fraud system in place. When fraud comes to an operator’s attention, it is almost always due to an insider’s tip, so make sure your employees feel safe acting as whistle blowers.
  • NEVER use signature stamps.
  • If you do catch an embezzler, contact an attorney immediately.
  • Hire an independent CPA firm to audit your business every year. By looking at computer records and rental agreements, auditors are able to ascertain the integrity of bookkeeping.  Storage audits not only help prevent employee theft, but they also increase operational efficiency and ensure that your managers know your policies and procedures.
  • Maintain a positive work environment. Employees who are ignored, under-appreciated or underpaid are much more likely to commit fraud.

Secure an adequate amount of employee-dishonesty insurance. Unlike those from burglary and robbery, losses due to employee dishonesty are excluded under most commercial policies. Many owners do not realize this coverage can be just as important as fire or liability insurance. Crime coverage can protect against losses from robbery, burglary, theft, embezzlement and other risks, and can be tailored to fit the size and scope of your self-storage operation. In most cases, your business-property and liability package policy can be endorsed to provide coverage against employee dishonesty, loss of money and securities from your premises, and loss of other covered business property such as computers.

One important point to remember about employee-dishonesty claims is the act must have been committed with “manifest intent”; in other words, the loss must be the result of an unethical act, such as lying, through which the employee sought personal gain. Without manifest intent, such claims are generally disallowed.

Also, inventory-shortage claims are excluded from employee-dishonesty policies because losses can occur from a variety of reasons beside theft, such as accounting errors. Consider also that money and security claims and business-personal claims are not the only losses that can be covered under employee dishonesty. Endorsements might be available to protect you against check forgery, credit-card misuse and computer fraud to supplement your existing protection at extra cost.