​​The Gift That Keeps On Giving

Lax controls around gift card procurement and giveaways enable a property manager to steal US $20,000 from her trusting employer.​

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Gift card fraud

They could hardly believe what they were witnessing. A well-dressed, professional woman, hands covering her face, tears streaming down her cheeks, mumbled repetitively, "Why did I do this?" The auditors had never seen anyone break down like this.

Just weeks earlier, Garrett Ross and Kevin Smith's boutique audit firm had accepted a new audit assignment from their client, Homestead Corp., to review the general controls at one of its many apartment complexes. Homestead's business model was simple: Build a high-end apartment complex, manage the property until 95 percent occupancy, and then sell the property. Its business was highly lucrative. Apartment living for young working adults was becoming the norm for this market. But simply having a fantastic uptown location was no longer the only draw for these lessees.

For this particular client, the construction audit was normally very clean; however, on the operational side, the firm had noted from previous audits of Homestead's apartments that their costs, especially during the leasing phase and compared with other companies they had audited, appeared high. When Ross and Smith approached Homestead with this pattern, it was quick to point out that to achieve 95 percent occupancy, it had to use several unique and expensive marketing techniques. The client reiterated that today's apartment tenants were spoiled: If they weren't offered numerous high-tech amenities or leasing gifts, they would go to the next apartment complex that would.

Homestead explained that there were no particular concerns with this complex. Nonetheless, it requested that Ross and Smith speak to the property manager, Leah Wynn, and examine how she markets the apartments to prospective tenants. The auditors' first impression when they arrived at the front office was a new 5-series BMW parked in the property manager spot. Ross commented to Smith, "Wow, what are apartment property managers making these days? Perhaps we're in the wrong business!"

Wynn offered the auditors a cup of coffee and began to share with them the success she had leasing apartments. "As you can imagine, prospective tenants are really drawn to our high-tech, ultra-modern apartments, the six saltwater pools, the weekly barbecues on the patio, the gym and free trainers, the monthly cash prize drawings, and the generous welcoming gifts," Wynn proudly explained.

"Can you please explain the marketing program and the welcoming gifts for tenants?" Ross asked.

"Yes, we offer them several cash-like gifts depending on how long they decide to rent from us, what size apartment they choose, and the number of roommates," Wynn said. "Prospective tenants are especially grateful for the pre-loaded VISA gift cards. You can imagine that tenants can do quite a lot to spruce up their apartments with amounts between US $250 and US $1,000!"

After a couple of hours of questions with Wynn, Ross and Smith requested routine documents to begin their audit. "Can you also include the list of tenants that received the gift cards?" Ross added.

"Sure, it might take some time to pull that list together, but I bet my staff will be able to do that," she answered.

The next day when Ross and Smith arrived, Wynn was not on the premises. Instead, they were greeted by one of Wynn's assistant managers, Shelly Turner. She handed them several files and pieces of paper, one of which had hand-written names and apartment numbers.

"What's this?" Smith inquired.

"This is the list of tenants who received gift cards from us," Turner responded.

"Okay," Ross added, "but didn't you keep a soft-copy record of this? And where are the dollar amounts they received, the gift card numbers, and the dates they received them?"

"I'm not sure if Leah kept records like that," Turner offered. "About a month ago, we were so busy leasing apartments that we hardly had time for anything like that. But you know, we did have them sign for their cards, and we kept that type of document in their leasing files."

The next day Ross and Smith sifted through leasing files trying to reconcile Wynn's list with the signature documents in the tenants' files. In some instances, they noted that signatures accompanied a quasi-formal document reading, "I have received a VISA gift card." Then, written below was the supposed signature of a tenant. For the most part, the signatures appeared to match the signatures on other leasing documents. But in some instances, the signature appeared to match that of the leasing agent, who also had signed several of the documents in the file.

While Ross continued evaluating the leasing files, Smith began reviewing bank statements and other backup supporting gift card purchases. It appeared that Wynn did not have a consistent process of purchasing cards. Some months the cards were procured directly from the bank. Other times, the cards were purchased from various retail outlets, such as grocery stores. The cards came in various denominations but never over US $250 for a single card.

As Turner walked by, Ross said, "Shelly, I have a few questions. This form reads, 'I have received a VISA gift card.' Did you offer just one VISA card per tenant, or did you give the tenants a couple of cards that equaled the total amount he or she was supposed to receive? Second, why is the amount never stated on the form they signed? Lastly, why do some of the tenant signatures look the same?"

Turner appeared to deflate when she was questioned. "Well, sometimes tenants would receive more than one card; it just depended on the amount he or she received as a gift. Sometimes, I would see Leah give the tenant several cards." She shrugged her shoulders, "I guess they wanted several
US $100 denomination cards."

"We didn't start requiring the tenants to sign the form until about a month into leasing," she continued. "Sometimes we would forget to have them sign it, so Leah or I would sign it." She paused and became quite pensive. "I guess I shouldn't have signed those documents, right?"

Smith pulled out a chair from the table and asked if Turner wouldn't mind sharing a bit about Wynn's work as supervisor. She sat down reluctantly.

"I'm not sure our tenants were actually getting all of the gift cards they were supposed to," she said. "Sometimes I'd overhear Leah talking with a prospective tenant and offer a gift card that was smaller than what he or she was supposed to receive. I didn't want to create any waves with Leah." She paused and then whispered, "I really need this job."

Ross then asked, "Have you noticed any changes with Leah since you began working with her?"

"Oh, yes, now that you mention it. It was subtle at first, but then it became real noticeable," Turner explained. "She began coming in later and later to work and was adamant about being the one to hand out the gift cards. Then I noticed that she was dressing in expensive, designer outfits. And, you saw that BMW, right?"

After the auditors' conversation with Turner, they decided they needed to handle this information and the rest of the audit with extreme caution. They called the client and requested a meeting to discuss their findings. Within a few days of their meeting, the auditors received word that they needed to meet with Wynn to review the details. The meeting went as well as expected. When the auditors presented the findings, Wynn confessed to stealing gift cards totaling US $20,000. A week later, both Ross and Smith received an email from the client about Wynn's termination. In subsequent meetings with Homestead, Ross and Smith learned that the client wanted to handle the situation discretely because it feared that any negative news would cause current tenants not to renew their leases and may drive away prospective tenants.

Lessons Learned

  • Review and assess any policies and procedures over the marketing process. Does the policy or procedure specifically address gift giving, which gifts can be distributed, how gifts are procured, the approval process if the gift or the amount spent is outside established guidelines, and established dollar limits? Can auditors determine whether management is following the process consistently?
  • Assess the completeness of management's documentation of gifts. If documentation is maintained, does it provide enough information about the type of gift, the purchase amount, where it was purchased, the purchaser, the issuer, the date of issuance, and the recipient?
  • Evaluate the gift procurement and distribution process. Are the duties adequately segregated, or does one person perform all the functions? Are gifts distributed at the office or after-hours at the tenant's apartment? Because gift giving is a fairly standard practice at any company — regardless of the
  • industry — the auditor should consider reviewing the gift procurement-distribution process, especially if the company engages in regular retirement parties, promotion events, company picnics, etc., in which gift giving is part and parcel.
  • Assess whether there's been any drastic changes in the employees' lifestyles: types of cars, clothing, and discussions about money. Living above their financial means can be an indication of company theft.
  • If possible, gauge employees' awareness and attitude regarding internal controls, asset handling, security, and monitoring.​

 

 

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