|Fraud, embezzlement and theft are typically accomplished with low-tech schemes. How do you protect yourself from becoming a victim? In recent months, I have seen several occurrences of dealerships being defrauded of sizable amounts of money, income or assets, which went completely undetected due to lack of controls and inspection from management. All of these occurrences were preventable, yet none of them were detected until it was too late. You could be next.|
Where are the opportunities for fraud or theft in your organization? What form will it take; who might be involved? You may experience losses from overt theft, incompetence or ignorance, but none of these can occur without management’s cooperation. In every case, management is complicit through inattention and complacency.
For example, a sizable dealership group recently lost in excess of $800,000 in less than three years due to employee embezzlement. In this case, an employee wrote checks to herself, voided the check, recreated bank statements (using the dealership’s computers) that omitted any reference to said checks and doctored the reconciliation to conceal her activity. Check amounts varied from around $1,000 to $8,500 in over 189 occurrences, spanning 33 months. That is a lot of activity to go unnoticed.
In another case, an independent dealer was taken for an undetermined figure, exceeding $50,000, by an employee who was allowed to have uncontrolled and uninspected access to dealership funds. There are many more examples that I do not have room for in this article, but I think you get the point.
The question is how to prevent it. Following are some tips:
Your DMS can be an invaluable tool in detecting potential problems. The most difficult items to find are those that are not there. Look for missing check numbers, voided repair orders, credits/write offs of receivables, discounts given and monies received versus monies deposited.
In what’s transitioning to a cashless banking environment, you must carefully inspect credit card authorizations, electronic funds transfers and payment authorizations. The larger the dollar value and more frequent occurrence of these types of transactions, the more potential there is for abuse, either by commission or omission. Look for such things as personal purchases on a company account. Gas, office supplies and parts are common areas for abuse and should be scrutinized regularly.
In short, make it a point to review (on a regular basis) your reporting mechanisms and counter verification opportunities. Most banks offer online access to checking, credit card, floor plan and any other accounts. Checking these resources will expose schemes like those mentioned earlier in the article. Inspection is the best deterrent you can employ in preventing financial abuse.
Theft occurs when three things are present: opportunity, need and justification. Elimination of opportunity is the only one under your control. Opportunity only exists when insufficient controls exist, and inspection is not a priority. Simply knowing you are diligently looking at all areas of your business is a significant deterrent to most would-be thieves.