Although auto sales plunged at the start of the COVID-19 pandemic, they’ve since rebounded. In fact, some auto dealerships are reporting record sales in 2021. Problems remain — including supply bottlenecks. Also, your dealership may be more vulnerable to fraud. Factors such as employees working from home, new vendors, and even booming sales, can put your business at risk. Here’s how to prevent fraud from cutting into profits.
Focus on accounting
Fraud prevention starts with strong internal controls. For example, good controls generally require a dealership’s accounting department to post transactions daily, including new and used vehicle sales, repair orders, invoice payments, payroll, and cash receipts.
By 1 p.m. on any given day, you should have access to real-time checkbook balances and other accounting information effective as of 5 p.m. the day before. Timeliness makes it easier for you to spot the first signs of fraud and use the data to catch a perpetrator before he or she gets away with theft.
Protections that work for your auto dealership
Complex computer passwords that must be changed frequently, background checks on employees and vendors, and security cameras are also essential to preventing fraud. But these protections may have fallen by the wayside during the pandemic. Review your safeguards now and ensure they’re being used.
Your business should always “segregate” duties. Generally, this means that certain tasks, such as managing payroll, are broken into pieces and performed by more than one employee. This limits opportunities to perpetrate fraud and cover up the crime. If you don’t have enough workers to properly segregate duties, consider outsourcing one or more accounting functions to a third-party service.
Loose controls in auto dealerships lead to losses
To understand how loose controls can facilitate theft, consider the real-life example of a parts manager who stole $70,000 by selling his employer’s parts and pocketing the cash. If the dealership’s owner had performed random inventory counts throughout the year, rather than waiting for his CPA to physically verify inventories at year-end, he could have prevented or limited losses.
In another case, a dealership caught its cashier stealing by voiding service orders and falsifying deposit slips. The cashier’s responsibilities included collecting cash, issuing receipts to customers, preparing the daily deposit slip, and reconciling the daily cash report. A loss of $16,000 might have been prevented if the dealership had segregated these duties.
Back to normal
The pandemic is waning. But that doesn’t mean you can afford to relax fraud protections. If you didn’t get a chance to properly vet new workers or vendors in the past year or haven’t kept up with inventory checks, get back to your usual controls as soon as possible. Contact us if you need help or if you suspect fraud in your dealership.