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Dealership Embezzlement in the Headlines – Is your store next?

By Marilou Vroman, CPA, CFE

You may be aware there are ways to monitor the web for content such as “Google Alerts.” This service is an easy way to have relevant news delivered to your in-box.  As a forensic accountant and a passion for dealership internal controls, one of my alerts is set up to provide articles about dealership fraud or embezzlement.  It seems almost every other day I receive an article about another dealership that has been taken advantage of by an employee.  After reading many of these articles, I find myself thinking, this could have completely been prevented with the simplest of internal controls.

Just yesterday I read an article about a Toyota dealership in which a General Manager perpetrated a fraud scheme where checks were diverted for personal use.  According to the article, the General Manager told his dealership employees to make checks in the thousands of dollars payable to a fictitious advertising vendor.  The vendor name appeared legitimate, however the entity provided no services to the dealership.  Further to the checks being issued, the General Manager asked that the checks not be mailed and given to him directly.  The funds were then diverted and used for personal benefit.  In addition to the diversion, he abused privileges of the company credit card and gasoline cards and manipulated performance incentives.  Millions of dollars were embezzled without detection.

These schemes can be prevented with simple and reliable internal controls, which implemented properly and consistently enforced by the Controller / CFO greatly reduce the risk of fraud:

  • Annual vendor approval process and vetting.
  • Customer and vendor checks signed and mailed by individuals other than the requestor.
  • Detail support for expenditures and verification of services rendered and products received.
  • Proper management approvals of compensation calculations and incentives.
  • Segregation of duties between authorization, custody and recording cash transactions.
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