Heart Choices-Not Hard Choices

Barbara (Babbie) Jaco, CPMVice President

Boyd Management, Inc.P O Box 23589

Columbia, SC  29224

“Success is the result of actions, policies and

procedures that create a culture of doing business the

right way.”

Ken Wheat

Early Mistakes

Family/Friends working for company

Busted pipe

Garbage dumpster

Drinks at lunch with coworkers

Background Checks

This is a business where you will be inundated with offers from vendors to do free things for you.

Carpet vendor giving bonus checks to managers

Free pest control, lawn care, etc.

Insurance adjustor offering chartered fishing trips

Where do I draw the line?

Let’s get a framework to work from:

Questions…

IREM Code of Ethics

Ethics- Realtors and CPM’s have a code of ethics that is supposed to lead us through this myriad of issues. We have a fiduciary responsibility to many involved in every deal. I’ve got with me the IREM/AMO Code of Ethics.

Code of Professional Ethics

What is the right choice?

If I owned this property

If this was my home

If this was my money

Article 1-Services to Client

In accordance with the management agreement, an AMO® Firm shall make, or cause to be made, regular physical inspections of the clients’ properties and shall keep its client informed as to the condition of the properties. An AMO® Firm shall competently manage the properties of its clients with due regard for the rights, responsibilities and benefits of the tenants, residents and others lawfully on the property. An AMO® Firm shall not engage in any conduct that is in conscious disregard for the safety and health of those persons lawfully on the premises of the client’s property.

Services to Client

Physical inspections

Manage properties with due regard for rights, responsibilities and benefits of tenants and others lawfully on premises

Keep client informed

“Shannon Gradick, the apartments’ manager, was arrested Jan. 25 and is believed to have taken bribes to let criminals, including convicted felons, move into Westgate despite federal regulations prohibiting them from living there. Cpl. Kurtis Purtee is investigating the case and said Gradick also took money to send prospective tenants to the top of the waiting list for units and cashed checks the federal government sent to tenants to cover utility costs.”

Arson at Westgate

Damage to property and loss of reputation

Evicted tenant arrested for arson

Who was checking the checker?

Who checked the tenant files?

Site employees were not supervised.

What happened?

Schemes Tenant A moves into property, receives R/A

and only pays $25 monthly rent. Tenant A moves out, and Tenant B moves into same unit. Site Manager leaves Cert from Tenant A in the system, but tells Tenant B they owe $300 in cash per month for rent. The Site Manager takes the difference of $275 per month and pockets this money.

Internal Controls- District Manager should inspect the property with the rent roll in hand, verifying actual identity of tenant and how much each tenant pays in rent.

Utility Allowance Checks- If tenants move out or do not pick up their utility allowance checks, manager will deposit into property’s bank account and use these funds to aid in kiting to cover cash that may have been pocketed.

Internal Controls- Accountants must review copies of deposits; no utility checks should ever be deposited into the property bank account.

Falsifying Tenant Certs- manager will falsify the income on a Tenant Cert, but will not notify the Tenant. This will cause an overpayment of rent from Housing Authority for a certain unit, which will allow the amount of funds available to be moved around and cover funds that were pocketed. Internal Controls- Accountants must review copies of deposits, including checks from Housing Authorities covering multiple tenants.

Missing Freon and/or supplies

Internal Controls- Set policies for puchase, storage and use of equipment. (Freon is $370/jug). Be aware of other businesses staff could be involved in after hours.

Brokering dependents for residents.

Internal Controls- We need a procedure for monitoring households that report little or no income.

Paint Contractor splitting money with staff.

Internal Controls-inspect all work closely. Know the personal lives of employees.

Inflating bids and taking kickbacks.

Blank Money Orders- Manager will make tenant’s blank money orders out to themselves (or accept cash from tenant) and use a kiting method to allocate other tenant’s rent payments to wrong accounts so as to keep Accounts Receivable balances low and not raise a red flag.

Internal Controls- Accountants must review copies of deposits with tenants’ checks to ensure that each tenant’s check is correctly applied. Be cognizant that managers will alter the copies of the checks, so if suspicions arise, request the actual copies of the deposits from the bank. Check Scanning can help because when a personal check is used, it is automatically paired with the correct tenant after the first time, whereas money orders can be applied to multiple accounts.

Vacant units- moving new tenants into vacant units, making them pay cash and pocketing the money.

Internal Controls- District Manager should have surprise visits with a current rent roll in hand and walk vacant units to ensure that they are indeed vacant.

Tenant next in line to receive R/A will not get it because Site Manager doesn’t like him/her. R/A will be assigned to somebody Site Manager likes, even if they are not next on the list for R/A.

Internal Controls- Use a software system that aids in the process of assigning R/A. Assignment of R/A needs to be monitored by Compliance Department. Especially look for new move-ins that are quickly assigned R/A.

Policy

Additionally, management could establish a policy whereby files were randomly audited by their home office such as an auditor in the Compliance Department. Desk auditors, per se (not to be completed by the Regional Manager).

Regional Managers must perform inspections and be held accountable by upper management.

When a property changes personality, something is wrong.

Monitor complaints- don’t dismiss them.

Article 2-Contractual Duties An AMO® Firm shall perform its contractual

duties and maintain company, property, and client records in accordance with all applicable regulatory guidelines, contractual obligations, client objectives and company policies. It shall not act beyond its contractual scope of authority as an agent without documented client approval.

Contractual Duties

Do not act beyond contractual scope of authority without client approval.

RD, USDA, HUD, Home, Tax Credit, 504, 236, 221D4….

Maintain company, property and client records in accordance with regulatory guidelines, client objectives and company policies.

If owner is out of compliance:

Investors lose credits Loss of reputation Developers blocked

from future development

The owner has his trust in our hands.

It is our responsibility to know everything about these programs.

Manager moves a tenant in, and quickly discovers that he/she has made a mistake in qualifying the tenant; and the tenant is actually ineligible to live in the apartment. Rather than bringing the mistake forward to the company, the manager decides to use White-Out on the paperwork to make the tenant appear eligible because he/she is afraid to tell the company about the mistake.

Internal Controls- Put policies into place so that employees feel comfortable bringing mistakes forward rather than covering them up. Should have a complete honesty policy.

Credits were disallowed and owner was out of compliance

POLICY

What are your training and compliance policies?

What standard are you holding all employees to regarding eligibility?

Do we terminate employees if we lose faith or trust in their efforts to maintain compliance?

Do you have adequate staff in your Compliance Department?

Do you have a no tolerance policy for dishonesty?

Open door policy

Article 3-Accounting

An AMO® Firm shall establish and adhere to sound internal financial controls for handling all company funds and client funds. It shall maintain, and update as needed, an accounting system that complies with accepted accounting procedures, client directives and obligations, applicable laws and regulations and supports company operations.

Accounting Firm shall establish and

adhere to sound internal financial controls for handling all company funds and client funds.

Is a qualified person in charge of your accounting department?

Do you have methods in place to prevent theft, monitor all activities, keep records, etc.?

There are many creative ways to steal…

Accounting Department

Accountant then booked the fraudulent check to vacancy loss in the prior month to hide from financial statement reviewer.

Internal Controls- Restrict accountant’s access to manual checks, request copies of checks to be included in bank statements.

Adding the employee’s name to the payee line after being approved by authorized signer.

Writing manual checks that bypass the computer software.

The timing of booking this was after the reviewer had checked off on the statement.

Payroll Payroll manager can

alter the routing number of a terminated employee and route an additional payroll check to payroll manager’s personal account.

Internal Controls- Independent accountant performs bank reconciliations and reviews checks being written. Signer of checks to pay special attention to voided or manual payroll checks.

Can the payroll manager prepare payroll checks, manual checks and balance records?

Who is balancing the payroll account?

The confusion of being paid in current can work to payroll manager’s advantage in such cases.

Employees setting up false vendors in A/P system.

Internal Controls- Executives should vet all vendors and supervisors should meet all laborers.

Relationships between employees can lead to financial schemes. Hiring a sub to do work. Collecting money when staff did work

on the time clock.

Article 4-Reporting Pursuant to the terms of the

management agreement, an AMO® Firm shall use reasonable efforts to provide accurate, auditable financial and business records and documentation concerning each asset managed for the client, which records shall be available for inspection by the client at all reasonable times. An AMO® Firm shall furnish to the client, at mutually agreed upon intervals, regular reports concerning the client’s assets under management. An AMO® Firm shall not exaggerate, misrepresent, or conceal material facts concerning the client’s assets or any related transactions.

Reporting Firms shall use reasonable

efforts to provide accurate, auditable financial and business records.

Keeping our clients informed of material facts that can or may effect his/her assets.

Internal Controls- Owners need to be involved in and ask questions of their management agent.

Firm shall not exaggerate, misrepresent or conceal material facts concerning a client’s assets or any related transactions.

These decisions are made at the top level of the corporation.

Cannot intermingle funds.

Banking decisions, clear record keeping, etc.

Article 5-Fiduciary Responsibility

An AMO® Firm shall at all times serve as a fiduciary for the client and shall not commingle personal or company funds with the funds of a client or use one client’s funds for the benefit of another client, but shall keep the client’s funds in a fiduciary account in an insured financial institution or as otherwise directed in writing by the client. An AMO® Firm shall at all times exert due diligence for the maintenance and protection of the client’s funds against all reasonably foreseeable contingencies and losses.

Fiduciary Responsibility

Shall not commingle personal or company funds with the funds of a client or use one client’s funds for the benefit of another.

Protect the client’s funds against all reasonably foreseeable contingencies and losses.

Had friendly relationship with accountant.

First, he audited her work and then became comfortable.

Internal Controls- Auditing. Auditing even your most trusted employee. Everyone needs accountability. Avoid working relationships where possible. Review your insurance policies and be sure you have appropriate risk levels insured.

Real Life Examples… Head of non-profit,

head of many civic organizations, leader in the community, well liked, family man.

Two years later, $500,000 is missing and there is only insurance coverage for $30,000 worth of funds.

As Ronald Reagan said, “Trust but verify.”

He committed suicide.

Article 6-Relations with Other Organizations in the Profession

An AMO® Firm shall not make, authorize or otherwise encourage any false or misleading comments concerning the practices of Members of the Institute of Real Estate Management and other real estate management professionals. An AMO® Firm shall truthfully represent material facts in their professional activities. An AMO® Firm shall not exaggerate or misrepresent the services offered as compared with the services offered by other real estate management companies. Nothing in this Code, however, shall restrict legal and reasonable business competition by and among real estate management companies.

Relations with Other Organizations in the Profession

Firm shall not make, authorize, or otherwise encourage any false or misleading comments concerning the practices of members of IREM.

Do not misrepresent or exaggerate facts.

IS IT FAIR TO ALL CONCERNED?

IS IT THE TRUTH? Complaints should

go upstream only.

You can steal from your company by stealing their reputation.

Grouchiness leads to

~Slighting Customer ~Damaging Company’s Reputation

Article 7-Conflict of Interest

An AMO® Firm shall not represent personal or business interests divergent from or conflicting with those of the client and shall not accept, directly or indirectly, any material rebates, gifts, fees, commissions, discounts, or other benefits, monetary or otherwise, which could reasonably be seen as a conflict with the interests of the client, employer, or firm, and which are not disclosed to the client.

Giving family/friends contracts and not fairly putting out to bid. Do not accept anything free.

Internal Controls- Establish company policies preventing such behavior and making it a terminating offense. Contracts should be awarded by an executive of the firm that has vetted the vendors and works to constantly expand the company’s vendor base.

Our industry is blasted with this from vendors and you have to take a strong stand.

Receiving kick backs from vendors, free work at your home, bonuses from vendors for purchases.

Its hard to have a disagreement and/or fire a vendor when you’ve been on a hunting trip with them.

Don’t go to lunch, dinner, or on trips with vendors.

Common Sense Policy

Article 8-Disclosure

An AMO® Firm shall not disclose to a third party any confidential or proprietary information without the client’s prior written consent except when disclosure is required or compelled by applicable laws and regulations.

Disclosure Firm shall not

disclose to a third party any confidential or proprietary information without the client’s prior written consent.

Many of us are located in small communities and our business is on the street.

In other words, you keep your mouth closed.

Remind your employees of this often.

Don’t let you be the one to talk.

Article 9-Compliance with Laws and Regulations

An AMO® Firm shall be established in compliance with all applicable laws and regulations. An AMO® Firm and its employees shall at all times conduct business activities with knowledge of and in compliance with all applicable laws and regulations.

Compliance with Laws and Regulations

Shall be established in compliance with all applicable regulations.

Now, most of us have a file of 30 documents to complete prior to determining eligibility.

Internal Controls- Agency reviews, self evaluation.

We used to move a tenant into a unit with a check stub.

This business is ever changing and evolving.

Keep up with continuing education and invest in your employees through training and constant education.

Article 10-Equal Opportunity

An AMO® Firm shall not deny equal employment opportunity or equal professional services to any person for reasons of race, color, religion, sex, familial status, national origin, age, sexual orientation, or handicap and shall comply with all applicable laws and regulations regarding equal opportunity.

Equal Opportunity

Shall not deny equal employment opportunity or professional services to any person for reasons of any of the protected classes.

Teach fair housing over and over again.

Internal Controls- Mystery shopping reports. Know your employees; know their attitudes.

Discrimination happens, whether an employee means to do it or not.

Article 11-Enforcement

The interpretation of compliance with this Code is the responsibility of the ethics boards of the Institute of Real Estate Management. Any violation by an AMO® Firm of the obligations of this Code and any disciplinary action or violation of any portion of this Code shall be determined and carried out in accordance with and pursuant to the terms of the Bylaws and Statement of Policies of the Institute of Real Estate Management. The result of such disciplinary actions shall be final and binding upon the affected AMO® Firm and without recourse to the Institute, its officers, Governing Councilors, Members, employees, or agents.

Power

Arrogance

Hire firms with an excellent reputation and a license that is in good standing.

“Success is the result of actions, policies and

procedures that create a culture of doing business the

right way.”