It was shock to read the news that a dealership controller recently embezzled $10 million. She was convicted of transferring money from the dealership’s online account to her own for seven years. She covered up the thefts with a series of fake transactions as well as listing phantom cars in inventory.
You might not like online transfers, EFTs, and electronic payments but they are not going away. It is easy to blame the fraud on new technology, but theft was common in the accounting office even when we had the two signer method of controlling payments.
When I started out in this business I worked for a large dealership where the payroll clerk paid her own rent for over a year. They had four signers on the bank account and she merely had the two signers that didn’t sign checks very often sign a monthly batch of difference in payrolls and license fee refund checks. She’d write off her rent check to various expense, cost of sales and slush funds. She got busted when her curious landlord called our boss and asked why the dealership paid her rent.
Statistics show that over 80% of embezzlements are found by mistake. Rather than blaming new technology and the ability to transfer funds electronically, we have to ask, “how she was able to cover up 10 million?” There must have been either a breakdown in operational and financial reporting or a complete lack of “checks and balances.”
What is the difference between financial and operational reports? A financial report is your factory financial statement or daily doc that shows the gross profit per unit and total gross for each department. An operational report is an F&I summary from your sales module that shows the front end and back end gross profit.
Since older DMS systems lack true integration between accounting and sales/F&I, the long accepted variance between sales and accounting gross and inventories are an embezzlement waiting to happen. This gap has created an opportunity for fraudulent amounts to be written off to cost of sales without further investigation.
The same holds true for vehicle and parts inventories. Module based DMS systems have two inventories for everything; the counter pad in parts (operational) and the general ledger accounts (financial) in accounting. The sales department maintains a vehicle inventory and the “sales department cost” may or may not be the same as the accounting schedule cost. Rarely are reconciliations done between the vehicles that accounting shows on the books and vehicles in stock per the sales department and if they are done – it is by the accounting office.
What is the solution? Since it has always been easy to get funds out of a dealership via checks, used vehicles, parts, etc., the true key to plugging the leaks in your bucket is a method that I call super reporting – which is using financial and operational reports that mirror each as a form of “checks and balances.”
I am currently working on this super reporting project, so you might want to check my website to see what I’ve been able to develop. The first task is to determine your area of risks. I have a pretty good idea of this. I used to work for a dealer that liked to challenge me to find creative ways to steal from him. I realize it was a warped game we played, but I’d come up with the idea and then provide him with the ways that he’d be able to catch me. Fortunately, I was an honest person and I enjoyed the challenge of writing reports on the DMS for him to run. He even sent me to an advanced reporting class to get better at report building. For a long time, operational reports were so badly written on the DMS that nobody counted on them to right, but with a little effort, operational Super Reporting can be used to validate accounting amounts and not the other way around.