5 Fraud Cases: What Dealers Didn't Do
By Mac Gordon Ward's Dealer Business, Sep 1, 2008 12:00 PM

Are you exposing your dealership to thefts of up to six figures because of inadequate safeguards and reviews of what controllers, finance and insurance managers and cash receipts clerks are doing?

That question, prompted by recent thefts from dealerships of as much as $700,000, has prompted Sacramento, CA dealer accountant Wayne Zimmerman of the firm of Pomares and Co. to list five cases of thefts by “trusted” employees and spell out what principals failed to implement to avoid the criminal acts:

1. A controller got away with a theft of more than $700,000 because the dealer never reviewed activity in the many reserve accounts he had established. Prevention: Dealers should systematically review activity in all reserve accounts.
2. A controller absconded with more than $500,000, setting up fictitious bank reconciliations, fraudulently listing deposits-in-transit and bank-to-book differences. Prevention: Bank reconciliations should be reviewed by principals regularly and prepared by an independent person at least twice a year.
3. A controller stole more than $300,000, taking advantage of his ability both to receive cash and close repair orders, on which he changed the sales prices and pocketed the cash. Prevention: Don't let this occur.
4. A finance and insurance manager caused a dealership a loss of more than $125,000 because warranty cancellations were never evaluated or tested. Prevention: Install a system that effectively controls disposition of warranty cancellation funds.
5. A cash-receipts clerk pocketed $35,000 because there was no segregation of cash functional responsibilities. Prevention: Create a system that segregates the cash flows in compliance with most dealerships' policies and procedures.

“Dealers are foolish to think that theft is not a common occurrence in their business,” Zimmerman says. “Every employee should be considered a potential thief. While employee trust is important, it must not be paired with complacency.

“Most dealers believe they have an adequate system of controls, but they rarely test to ensure its adequacy or compliance with significant policies and procedures.”