Superintendent Fraud

Article by Steven Muxlow

This is perhaps an unfair question to ask given that this type of crime is committed without your knowledge. However, there may be some of you reading this article that have already been stung by superintendent fraud and have vowed to never let it happen again. For those of you that are now wondering if some of your apartments are being rented without your knowledge and/or you are paying for fictitious expenses, there are steps to reduce the risk and cost of superintendent fraud. However, taking those steps really depends on you.

The first step is to acknowledge that fraud is an intentional crime and does not occur by random chance. Given this, you do have a degree of control in reducing and/or preventing fraud. This control arises only after you have identified the parts of your business that may be susceptible to fraud and then taking action. After all, the successful dishonest superintendents will misuse his/her’s authority to exploit the weaknesses in your business.

Realizing that prospective superintendents will not include criminal activities on their resumes, it is not easy to be sure that the person you have hired will commit fraud or not. However, at the time you are considering someone to work for you, it may be a valuable investment of your time and money to carefully check the background of the individual. Certainly obtaining reference checks from past employers is a good start but you may also want to consider obtaining criminal and credit reports to get a fuller understanding of the individual’s background and potentially save you from the future grief of fraud.

Once you have hired someone to be your superintendent, the next step is to recognize some of the common motivations behind employee fraud and how it might be concealed. While there are variety reasons why an employee will commit fraud, there are three common ones that may motivate your superintendent: (1) supporting an affluent lifestyle, (2) supporting an addiction (drugs, alcohol, gambling) and (3) relief from significant financial debt. Behind each of these reasons, it may not very hard to identify some the visible behaviours that a superintendent may exhibit, such as driving expensive cars, constantly talking about his/her’s high stakes betting, and receiving calls from angry creditors at work. 
Should you become aware of similar situations, you might ask yourself two questions: Is the superintendent able to afford the lifestyle, addiction or debt given his/her’s salary or wages? Does the superintendent have access/control to the employer’s assets? If the answers are ‘yes’ to both questions, you may want to consider reviewing the superintendent’s work activities to identify any questionable discrepancies.

Concealing fraud from you usually requires a certain degree of effort on the part of the superintendent. To ensure that others do not discover the theft a dishonest superintendent may not take his/her annual vacation, may routinely ‘misplace’ important paperwork, or may provide you with a pattern innocent excuses for not doing a specific job responsibility that is further backed up with false promises to improve. 

Property owners should exercise a degree of caution by investigating all of the facts first and not leap to any conclusions. Just because your superintendent’s action or behaviour is raising a ‘red flag’ to you, it does not necessarily mean that fraud was committed. It is quite possible that the superintendent may be able to afford these activities through alternative and legitimate means, such as family wealth or a recent inheritance.

While assessing the individual important, you also should focus your attention on your business and how it operates. Specifically, you may want to consider identifying the areas of your business that are most vulnerable. For example, a building owner that operates on a cash basis with little or no record keeping may be more susceptible to superintendent fraud than another building owner having rigorous reporting requirements for cash transactions.

To identify the areas of opportunity, a property owner may find it useful to evaluate its business from the perspective of a potential dishonest superintendent. Some questions that a dishonest superintendent may or may not consciously ask himself/herself are: If I (the superintendent) am responsible and in control for managing a building, what money or assets can be taken? How, when, and where can the money or assets be taken? How can the theft be concealed? 
are: If I (the superintendent) am responsible and in control for managing a building, what money or assets can be taken? How, when, and where can the money or assets be taken? How can the theft be concealed? 

Once you have identified the vulnerable aspects of your business, you can then take steps to reduce or eliminate the opportunity to commit fraud. For example, you may randomly, yet regularly, visit your buildings to confirm that vacant apartments are in fact vacant and have not been secretly rented out by the superintendent. Another example is that you could require that all of your business cheques must be signed by two people instead one, thus a single person is not in sole control of making payments. 

The risk of superintendent fraud can certainly be reduced, however, it is difficult to eliminate. Whether it is a single large theft or small numerous thefts over time, a strongly motivated superintendent may try to exploit what little opportunity is available. To offset these potential losses, property owners can purchase insurance, called employee dishonesty coverage, and is available from many Canadian insurance companies. In 2002 and 2001, insured organizations received approximately $44 million and $47 million respectively under their employee dishonesty coverage.

To inquiry or obtain employee dishonesty coverage and risk management strategies, I recommend that you contact your insurance broker for more information and assistance.

For More Information:

Steve Muxlow
Aviva Insurance Company of Canada

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