On a dreary afternoon in March 2006, over 500 renters came home to find some stunning news. They opened their mailboxes and found an unusual letter from Kari Kimball, owner of Missoula’s now-infamous Apartment Store, notifying them the company was missing some $320,000 in rental deposits and placing the blame squarely on the company’s previous owner, Maris Mills. But now, two years later, an accounting investigation initiated by Mills tells a more detailed story and finds no evidence of fraud by either party.
Last month, Galusha, Higgins & Galusha completed a year long forensic accounting report at Mills’ request to explain what happened to the missing $320,000. Pouring over thousands of documents, the accountants found no evidence of fraud by Mills, but they did discover major accounting errors in the company’s books, and there’s still $65,000 missing from trust accounts set up to hold tenants’ security deposits.
In the end, Galusha concluded it wasn’t worth the effort to figure out what happened to the rest of the money. The report cites difficulties tracing past transactions due to numerous missing accounting records, inconsistent figures, and the disappearance of a three-ring binder holding the company’s bank statements.
“We have found sloppy and inconsistent accounting practices and lack of accounting and software knowledge by former Apartment Store personnel,” the report says. “As we have tried to piece information together, the scope of the project has evolved, but has always been stopped by the lack of the records.”
The report noted even Mills herself could not access certain password-protected records she inherited when she bought the business. Given these circumstances, the report concludes, “The ‘unexplained shortfall,’ is just that, unexplained.”
Although questions remain unanswered, the accountant’s report offers some insight for the Apartment Store’s clients and renters who have been wondering what led to the meltdown.
Just hours after Kimball’s original letter went out in March of 2006, a wave of phone calls from Apartment Store clients woke Mills from her bed in Whitefish.
“They kept calling, all of them saying, ‘[Kari Kimball] took my rent, paid herself, and then filed for bankruptcy,’” Mills says.
“I was shocked and stunned,” she recounts, “I just kept saying, ‘That just can’t be…there’s no way [Kimball] just did that.’”
Alarmed by the accusations, Mills responded days later with her own letter denying responsibility and asserting that Kimball’s mismanagement caused the Apartment Store’s problems.
And if there was in fact missing money, Mills pledged she would pay it back. After all, the Board of Realty Regulation audited the company’s 2004 records and noted only minimal accounting errors. Documented correspondence indicates Mills also made numerous requests to Kimball and Kimball’s attorney, Zane Sullivan, for accounting documents and records, in an effort to re-construct the company’s financial history.
Nevertheless, renters and landlords did exactly what court-appointed bankruptcy trustee Don Torgenrud Jr. hoped they wouldn’t do: panic.
Torgenrud already knew of the impending disaster two weeks before Kimball’s original letter went out and tried to sell the company’s book of business to another property manager in hopes of effecting a “seamless transition.” The bleeding firm could continue collecting over $65,000 in monthly rent, clean up its accounting, and look for new owners without creating alarm.
But when Kimball sent out her letter telling renters they were on their own and that $320,980 had gone missing, she created the panic Torgenrud hoped to avoid.
“Everybody stopped paying and the landlords jumped ship,” Torgenrud said, suggesting Kimball’s letter looked like a litigation strategy. “They tried to get a leg-up on Maris Mills.”
Yet renters, who most likely didn’t even know who their real landlords were, struggled to find answers. Where were their deposits, and who was responsible for returning them?
Heidi Fanslow, a Missoula attorney with a background in landlord-tenant disputes stressed that it’s the landlord’s legal responsibility—not the Apartment Store’s—to return the deposits to renters.
“Here’s the deal,” she told the Independent a month after Kimball shut down the business, “Not a single [Apartment Store] tenant—not a single one of them—is responsible for those deposits.”
Ironically, Galusha’s report calculates the actual missing funds to be right in the neighborhood of $65,000, roughly the total rent Torgenrud figured the Apartment Store could have collected had Kimball not abruptly shut down and declared bankruptcy. The report does not indicate whether those funds disappeared under Kimball’s watch or Mills’, or if they resulted from the prolonged mismanagement of accounting records.
“During our testing and review, we did not find evidence of fraud by the former owner, Maris Mills,” the report says. “We noted lack of management oversight by Ms. Mills and a lack of attention to details, but not fraud.”
The Independent has not been able to locate or contact Kari Kimball, and her attorney, Zane Sullivan, declined to comment for this story.
As for Mills, who recognizes that her professional success depends upon her relationships with others in the business world and their perception of her integrity, the accounting report ends a dark chapter of her career.
“Since this thing started, I have done nothing but try to vindicate myself every single day,” she says. “And now, after all this effort, I’m finally vindicated.”