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:

   •     Separate duties that involve cash. Where possible, have a different person sign checks than the one who generates them. Have your bank deposits reviewed by a second staff member. Have online access to your bank, and check reconciliation reports to your bank’s information. 

  •      Get to know your employees, their habits, situation, lifestyle, etc., and be cognizant of changes in any of these.

  •     Require vacations for anyone involved in the handling of your financial information. .

  •     Review your financial statements and associated reports for trends that are not indicative of your business activity. Increases in inventory, receivables, write offs and expenses that appear incongruous with your expectations require further review and more detail to determine if they are correct.

  •     Hire an outside source to review your financial processes and report only to management.

  •     Create an atmosphere of calculated trust. Ask questions and require documentation to substantiate the answer you receive.

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. 

Vol 4, Issue 11