Strengthening Internal Controls and Fraud Prevention in Property Management Finance (ERP-Driven)

Abstract

This article examines the ways in which internal control, that is the management of risk, can be reinforced in the finance function of a property manager by implementing an ERP system or a property management system that functions on the same idea. It does not make a new estimate of a regression, and it doesn't manufacture survey results. Owners' money, reserves, security deposits and rents are held by the property manager. The fragmentation of custody, the small teams and many owners present the opportunity for rent skimming, deposit diversion, fictitious vendors, and payment tampering, commingling and unsupported charges on owner statements. The evidence of occupational fraud reveals that a failure to establish controls and an override of controls represent over 50 % of schemes investigated and that the average scheme is detected within approximately 12 months of its occurrence. Results from the public company evidence indicate that companies using enterprise systems are less likely to have internal control deficiencies as compared to comparable companies that don't use enterprise systems, and companies that remediate control deficiencies are more likely to have a better quality of accruals. There is no single voice of the literature on earnings discretion. The implementation of the changes is linked to lower discretionary accruals in one study, and larger absolute discretionary accruals particularly if more modules are used in another study. So the article gives the system a second-class citizen status when role design, role matching, trust cash separation and the three way reconciliation are not implemented in reality, and the software license gives management override and careless implementation a second bite at the cherry.

Keywords: Property Management Finance, Internal Control, Occupational Fraud, Enterprise Resource Planning, Trust Accounting, Segregation of Duties