Internal theft is a persistent problem for dealers. It is estimated that dealership employees are stealing the equivalent of $9 per employee per day, so a dealership with 100 employees is suffering a theft loss of $234,000 each year.
With the impact to dealers so high, what can you do to prevent and protect yourself from fraud? Listed below are a few internal controls that if implemented could help prevent theft.
New Department • Perform frequent unannounced physical inventory counts • Establish strict inspection procedures • Allow no options or equipment to be removed without an internal repair order
Used Department • Maintain an approved list of wholesalers and do business only with those approved • Verify dealer licenses and sales tax permits • Review all wholesale transactions that result in a loss and retail transactions with low grosses
Parts Department • All parts and repair orders need to be computer generated with changes crossed off and initialed by the manager. Then the ticket should be properly voided with the corrected ticket referencing the original document. • Establish a clear policy for discounted purchases by customers and employees • Frequently check shipments of parts in company vehicles
Service Department • Service work should be spot checked to ensure parts charged are being used in the repair order • During month end procedures, all WIP should be computed and inventoried and all repair orders should be listed • Ensure no unit leaves the shop without proper payment arrangements being made
Other Items • Department managers must sign off on payrolls approving the individual and amount • Bank statements should be delivered to the dealer unopened and should be reviewed for unusual items and cancelled checks. It should also be reconciled by an individual with no access to cash. • Further, special procedures should be developed to control electronic banking transactions. • Make sure all clearing accounts are current (payroll tax withholdings, vehicle payoffs)
Fraud can have devastating effects on profits. If are not protecting yourself against fraud, you need to get there. You do not want to be the dealer who has fraud resulting in a $200,000 hit to the bottom line.
Clint Whitehair can be reached by email at CWhitehair@hbkcpa.com or by phone at 317-886-1624.To discuss ways to implement a system of Internal Controls to avoid internal fraud at your dealership or for any other inquiries, contact a member of the HBK DIG at 330-758-8613.