Automotive Compliance Consultants president Terry Dortch recapped what he described as “sad and unfortunate” news about employee crimes against dealers. Before going into a few tips for protecting the dealership against such activities, Dortch highlighted a few recent headlines about such occurrences, including:

• Florida couple accused of stealing $2 million from S.C. car dealership, warrants say.

• Kentucky dealership employee arrested and charged with three counts of theft by deception.

• Pennsylvania dealership controller headed to jail after embezzling $10 million.

Dortch acknowledged the criminal activity itself is detrimental, but the breach of trust can be worse. Whether informal or formal, Automotive Compliance Consultants insisted employees make a covenant with their employer when they agree to give their services for compensation.

Said a dealer whose longtime employee was charged with falsifying vendor payables to steal from the dealership, “The crime feels like the betrayal of a family member.”

A survey a few years ago by an accounting firm noted that a third of dealership respondents had “experienced actual or attempted fraud.” Of those, 62 percent of the fraud perpetrators were employees.

“These events can seem to happen out of the blue, but often in retrospect behaviors, practices and outside activities were warnings about such individuals,” Dortch said. “These individuals are often more concerned with what they get from their position than what they can contribute.”

Automotive Compliance Consultants explained that operators can consider these defenses for asset theft:

• Security cameras to watch over parts and materials inventory shelves, supply rooms, parking lots and other outside areas to observe suspicious activities.

• Limit access to areas like the parts department, main office, F&I office, cashier office, materials closets and parts storage.

• Note employees’ lifestyles, habits and behaviors that seem suspicious or otherwise indicate they may live above their visible means.

• Employees hanging around in areas where they have no legitimate reason to do so is a red flag.

• Enforce your internal controls policies.

For back-office defense, Automotive Compliance Consultants shared these suggestions:

• Don’t allow one person to have complete control of bank accounts. Have one individual handle payoffs of trade-in balances and another control license and title activities; have a third person manage the day-to-day bill paying. This would mean having multiple accounts.

• Conduct regular audits of the books; auditing by a third party preferred.

• Daily review the DOC or daily operating control sheet. Look at vendor expenses closely and know each vendor and the service they provide. Look for any abnormalities in the expense, i.e. is it way too high for the service they are providing?

• Investigate anything that looks different or out of place on vehicle values, bank statements, inventory balances or number of ROs.

• Don’t shrug off any swing in profit, revenue or payables — always investigate.

• Pay close attention to used inventory and the water that exists. Market fluctuations will occur, but you don’t want to see large swings that could signal something amiss.

• Pay close attention to your wholesaled vehicles run a report at least monthly to see what is being wholesaled and check the price it was sold at.

• Pay close attention to contracts in transit — again, this could mean something other than just waiting on stips or stipulations, the documents required by a lender to fund a loan, such as proof of income, residence, and proof of insurance.

• Check bank statements personally; randomly look for abnormalities.

• Keep an eye on used car reconditioning; if looks out of place, dig deeper.

• Conduct monthly inventory of all vehicles, used and new, and match to the dollar amount on the books and/or floor plan.

And when it comes to data security, Automotive Compliance Consultants recommended that operators engage a managed security services provider to monitor your store’s network and alert your IT staff when an intrusion occurs so immediate action can be taken.  Absent such real-time network monitoring, the dealership will likely remain open to network compromise and perhaps substantial loss. 

Finally, Automotive Compliance Consultants stressed that dealerships need to make sure every employee knows that no internal theft of any kind will be tolerated — and be sure they understand violations will cause dismissal, at least, and criminal prosecution often.

“Sometimes having a third party audit the dealership’s exposures will provide the most prevention and peace of mind,” Automotive Compliance Consultants added.

Automotive Compliance Consultants specializes in dealership compliance, providing in-dealership consultations and analysis, compliance audits and training, and offers solutions for all compliance needs. The Automotive Compliance Consultants staff has extensive experience in the automotive retail industry and focuses exclusively on dealership compliance issues.

For information, contact Dortch at terry_dortch@compliantnow.com or visit www.compliantnow.com.