Expensive Theft Schemes in Dealerships

Rex Collins
CPA
Somerset CPAs

Friday, September 01, 2006

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Internal theft is big business. It is estimated that the cost to each employer is $9 per day per employee. For a dealership employing 100 people this amounts to over $280,000 each year. Furthermore, dealerships with fewer than 100 employees are most vulnerable to theft.
Most dealers can expect at least one incident of theft each year. It is reported that for one five-year period during the nineties, 50 percent of all dealers experienced theft and that number has been rising at an annual rate of 5 percent. In a separate study, it has been reported that 80 percent of all dealership employees engaged in some sort of theft at work in the last five years. Employee theft is most likely to occur in departments with cash or other assets that can easily be converted to cash, but all departments are at risk. The risk of loss is even greater if poor, or no, internal controls are in place. A couple of examples of theft schemes we have uncovered may illustrate the dangers present in your dealership. An import client of ours suffered a theft of $200,000 perpetrated by its general manager. The GM opened the incoming mail and pulled out miscellaneous checks (vendor refund checks, finance reserve payments, etc.). This general manager was also responsible for taking the deposit to the bank each day. After he was given the daily deposit by the office the GM would pocket some of the cash and replace it with the checks he had pulled from the incoming mail. He went so far as to prepare a new deposit slip listing all of the checks, including the ones he added to the deposit and the new cash amount. This was done so that the deposit slip that the bank processed would match the actual cash and checks received. The deposit receipt provided by the bank thus reflected the original amount of the deposit, even though the GM had stolen funds from the dealership.
A domestic dealer-client also operated a car rental operation and was victimized by its rental manager who stole at least $98,000 over a three-year period. The manager encouraged the customers to pay cash for their rentals then destroyed the rental tickets and pocketed the cash. This dealer had no system in place for detecting the missing rental agreements and did not understand the rental business. Furthermore, it should be noted that the dealer’s insurance limit was only $25,000. These are only a couple of examples of theft we have uncovered. We have discovered theft schemes in service departments, body shops, and parts departments totaling many thousands of dollars. The manner is which the dealers are defrauded is only limited by the ingenuity of the thief. The size of the dealership isn’t necessarily an indicator of the risk. Small dealerships are usually at risk because they do not have the systems in place or the people in place to monitor the systems. Large dealerships are at risk because they may have so many employees that they lose track of who is responsible for what, which is then used to the advantage of thieves. Few dealers are immune to the dangers of fraud, and any slowdown in the economy will only increase its existence. If you have never had a risk assessment, call your CPA today. He or she should be able to review all aspects of you dealership and provide you with a risk assessment as well as suggestions for minimizing those risks. Set up an appointment with your insurance agent and make sure you have adequate coverage if you should fall victim to a theft scheme. Volume 1, Issue 2

View all articles by Rex A Collins
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