Do You Have Fraud in Your Dealership and Not Know It?

By Randy Domigan, CPA, CFE

COVID provided many challenges to dealerships, but it also provided some tremendous opportunities. Dealerships in the past few years have been realizing record profits. It also has led to staffing challenges at all levels in the dealership back office and many dealerships are doing more with less people. Many times, this leads to one person having a lot of responsibilities around the financial operations of the dealership. In many dealerships, one person may have oversight of the accounting records and they also have the responsibility for signing checks, taking the deposit to the bank and are in charge of payroll. These are some of the primary areas where fraud has been uncovered in many dealerships.

Here are some questions to ask yourself as a dealer:

1. Does my controller/office manager/bookkeeper have full access to all modules in the DMS? This would include accounts payable, accounts receivable, payroll, etc.
2. Does my controller/office manager/bookkeeper sign checks?
3. Does my controller/office manager/bookkeeper oversee all aspects of payroll?
4. Does my controller/office manager/bookkeeper have online access to the dealership bank accounts including the ability to initiate and approve ACH transactions and wire transfers?

If you answered yes to one or more of these questions, then your dealership could be at risk for fraud.

Many times, frauds start small. Sometimes it can even start with an inadvertent mistake that is not caught, because of the lack of oversight or segregation of duties within the accounting department. Once the small mistake goes unnoticed, it can expand to include more intentional transactions.

Some warning signs of fraud:

Have you noticed any of the following situations with any of your employees?

1. Are any of them living beyond their means
2. Are any of your employees having issues with substance or alcohol abuse?
3. Are any of them having relationship issues with their significant others?
4. Do any of them have family members that are dealing with health issues that could be terminal or require additional resources for treatment?

Many of these situations can lead even the most trusted employee to turn to fraud.

What can I do if I feel like my dealership may be at risk?

There are some very simple steps that a dealer can take if they feel like their dealership is at risk for fraud. Contact a fraud professional that can do an analysis of your accounting department and systems to assess your risk. If it turns out risk areas are identified, additional procedures can be performed to determine if you have been a victim of fraud.

Brady Ware has fraud professionals available to assist. We stand ready to perform risk assessments and perform testing to determine if a fraud has occurred in your dealership. We can also assist your dealership and provide some very practical ways to help mitigate your risk of fraud that don’t include hiring more personnel or taking on a lot of additional time consuming tasks.

Questions?
Do you have questions about fraud in your dealership? Contact us! Randy Domigan is a Certified Fraud Examiner and is available to help.