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Jim Leman

Jim Leman Writing about dealer operations

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As Dealer Employee Thefts Continue, Tips for Preventing this Unnecessary Crime

CRYSTAL LAKE, IL, July 13, 2016 – The sad and unfortunate news about employee crimes against auto dealers continues, so a few tips for protecting the dealership against such activities is timely, notes

Terry Dortch, president of Automotive Compliance Consultants

A few recent headlines about such occurrences: 

  • Florida couple accused of stealing $2 million from S.C. car dealership, warrants say
  • Kentucky car dealership employee arrested and charged with three counts of theft by deception.
  • Pennsylvania dealership controller headed to jail after embezzling $10 million. 

The criminal activity itself is detrimental, but the breach of trust can be worse. Whether informal or formal, employees make a covenant with their employer when they agree to give their services for compensation. 

Said a dealer whose long-time employee was charged with falsifying vendor payables to steal from the dealership. “The crime feels like the betrayal of a family member,” he said. 

“These events can seem to happen out of the blue, but often in retrospect behaviors, practices, and outside activities were warnings about such individuals,” Dortch said. “These individuals are often more concerned with what they get from their position than what they can contribute.” 

A survey a few years ago by an accounting firm noted that a third of dealership respondents had “experienced actual or attempted fraud.”  Of those, Sixty-two percent of the fraud perpetrators were employees

Consider these defenses for asset theft: 

  • Security cameras to watch over parts and materials inventory shelves, supply rooms, parking lots, and other outside areas to observe suspicious activities.
  • Limit access to areas like parts department, main office, F&I office, Cashier office, materials closets, and parts cores storage.
  • Note employees’ lifestyles, habits and behaviors that seem suspicious or otherwise indicate they may live above their visible means.
  • Employees hanging around in areas where they have no legitimate reason to do so is a red flag.
  • Enforce your internal controls policies. 

For back office defense: 

  • Don’t allow one person to have complete control of bank accounts. Have one individual handle payoffs of trade-in balances and another to control license and title activities; have a third person manage the day-to-day bill paying. This would mean having multiple accounts.
  • Conduct regular audits of the books; auditing by a third party preferred.
  • Daily review the DOC or Daily Operating Control sheet. Look at vendor expenses closely and know each vendor and the service they provide. Look for any abnormalities in the expense IE is it way too high for the service they are providing.
  • Investigate anything that looks different or out of place on vehicle values, bank statements, inventory balances, or number of ROs.
  • Don’t shrug off any swing in profit, revenue, or payables --always investigate!
  • Pay close attention to used inventory and the water that exists. Market fluctuations will occur, but you don’t want to see large swings that could signal something amiss.
  • Pay close attention to your wholesaled vehicles run a report at least monthly to see what is being wholesaled and check the price it was sold at.
  • Pay close attention to contracts in transit – again, this could mean something other than just waiting on Stips or stipulations, the documents required by a lender to fund a loan,  such as proof of income, residence, and proof of insurance.
  • Check bank statements personally; randomly look for abnormalities.
  • Keep an eye on used car reconditioning; if looks out of place, dig deeper!
  • Conduct monthly inventory of all vehicles, used and new, and match to the dollar amount on the books and/or floor plan.

Data security:

  • Engage a Managed Security Services Provider to monitor your network and alert your IT staff when an intrusion occurs so immediate action can be taken.  Absent such real-time network monitoring, the dealership will likely remain open to network compromise and perhaps substantial loss. 

Make sure every employee knows that no internal theft of any kind will be tolerated – and be sure they understand violations will cause dismissal, at least, and criminal prosecution often. Sometimes having a third-party audit the dealership’s exposures will provide the most prevention and peace of mind.

Automotive Compliance Consultants specializes in dealership compliance, providing in-dealership consultations and analysis, compliance audits and training, and offers solutions for all compliance needs. The Automotive Compliance Consultants staff has extensive experience in the automotive retail industry and focuses exclusively on dealership compliance issues. 

For information, contact Terry Dortch at terry_dortch@compliantnow.com or visit www.compliantnow.com.

 

 

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