Insights: Article

Dodging Fraud in Dealerships

By Jason Olson

June 01, 2018

Scheme Type: Embezzlement

Loss Amount: $520,000

Duration: 16 Months

Red Flags: Missing petty cash

Industry: Dealership Industry

Perpetrator’s Position: Office Employee

Scheme Synopsis:
A 43-year-old woman and former office employee of a Dodge dealership will be sentenced soon for a $520,000 embezzlement scheme she carried out over 16 months. When people read stories like this in the newspapers, they often wonder, a) How did it happen? and b) Didn’t this person think they would be caught? Let’s address the “how” first.

This former employee, like many of other embezzlers, had too much access to the organization’s assets. She had access to customer payments, checks, a signature stamp and access to accounting records to conceal her fraudulent ways. Given her “access,” she wrote unauthorized checks to herself and diverted customer payments for personal gain.

Tips to Prevent or Detect This Scheme from Occurring at Your Organization
Although many organizations lack ideal segregation of duties, this fraud could have been prevented and/or detected much earlier. The following methods are just a few proactive and reactive forensic accounting tips that would have more likely than not uncovered this embezzlement:

  • Reconciliation of cash, check and credit card payments from daily sales source records to deposits clearing the bank account(s) to ensure each tender type reconciles without exception.
  • Inspecting pre-numbered checkbooks for missing checks.
  • Examining bank statements for out-of-sequence checks clearing the bank account(s).
  • Examining front and back copies of cancelled checks to verify payees match to the payees in the accounting system.
  • Comparing deposited items clearing the bank account(s) to posted customer payments in the accounting system.

In this particular embezzlement scheme example, a dealership would have an employee independent of the cash receipts and cash disbursements functions to perform these procedures. By implementing these simple procedures and making your employees aware of them, you have done your job of instilling the number one way to prevent fraud: you have increased your employees’ perception of detection.

Employees are less likely to commit fraud when they perceive a lack of opportunity to do so without being detected. This addresses the “didn’t they think they would be caught” question we often hear as forensic accountants. Most people fear being caught.

Ah, yes, the old, but proven fraud triangle; opportunity, pressure and rationalization. As a dealership, you can control opportunity for fraud. You cannot control your employees’ personal pressures (e.g., spending habits, debt and addictions) or how employees may rationalize their behavior to justify why committing fraud against your dealership is “ok.”

This fraud scheme and many others can be prevented and/or detected with easy to implement procedures. You might be thinking to yourself that if these procedures are so easy to implement, then why are there so many embezzlements in the newspaper headlines? That’s simple, too. Organizations—possibly even yours—haven’t had the “embezzlement” experience yet, so until they do, it’s business as usual. Hopefully your dealership can learn from this unfortunate dealership embezzlement by implementing these simple procedures to “dodge” fraud at your dealership.

And, oh by the way, if you are thinking these procedures create a culture of trust issues, think again. Employees who care about their positions and their employers welcome internal controls and transparency with open arms. The trust, but verify, culture improves employee morale as your best employees appreciate it. Just ask an employee who worked with an embezzler. They will tell you how draining fraud can be to employees’ morale.

Full Case Details can be found here.

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