• Adrian Martinez

Using the Economic Low Tide to Expose Unethical Individuals

Tips on Exposing Unethical Behavior During Volatile Times.


By Phil Villegas


In a previous Weekly Spiff, I had highlighted how leadership traits have been revealed during this challenging economic environment. I referenced these leadership traits do not only apply to Dealers, Operators, GM, or Managers, but also extend to individual employees.

If we look at positive leadership traits at the optimal end of a desirability spectrum, we should also consider and explore what the other end of the spectrum might entail. In this case, we would consider a self-serving and self-enriching mentality at the expense of the dealership to be one of the least desirable traits an individual could exhibit in a time of crisis.

I subscribe to the belief that at every dealership, there is at least one employee at any given point in time abusing his or her responsibilities and self-enriching at the expense of the dealership. I am talking about overt acts or behavior an employee consciously makes, knowing they are wrong, in order to personally benefit from those actions.

Just like strong leaders have risen to the top during this period, I am a firm believer those at the other end of the spectrum will bottom feed. During times like these when transactional activity has significantly decreased, individuals at this lower end of the spectrum become more exposed and detectable.

While a good amount of people would rather forget what has happened the last two months, we do have a unique opportunity to explore the transactional behavior of employees during this time. Some less ethical employees have likely capitalized on this stress filled environment while ownership and management were focused on greater business concerns like keeping the dealership viable.

Here are some simple internal audit checks that can be completed internally without having to bring in an outside consultant:

· Cash Count: Do a surprise cash register/petty cash count to ensure all funds are accounted for. Individuals misusing of cash will come up short or claim to be missing a receipt, RO, ticket, etc. as an excuse for cash they may have taken or are lapping.

· Open RO/shop walk: The goal is not only to make sure that there is a vehicle still on site for every open RO, but also whether any undocumented vehicles are being worked on in the shop (this is particularly relevant in dealerships with body shops). Pay particular attention to open RO in an employee’s name or related party.

· Open Parts Tickets: This is one of the lowest hanging fruits in internal auditing which seems to be overlooked by many stores. Look for employee or related party names and items aged beyond a few days.

· Daily Deposit Dive: Take two weeks work of daily deposits and pay close attention to manual adjustments or notes on the deposit reports. The goal is to test the integrity of the deposit, while a manual note or adjustment may appear on occasion, a repeated pattern is typically indicative of a procedural breakdown or someone manipulating cash payments.

· Credit Card Refund Batches: Obtain your merchant services statement for the last three months and identify days with refunds in excess of $250. With the days identified, look at individual batch details to try to identify any nefarious refund patterns.

· Canceled Check Review: Looking at canceled checks is a lost art with the advent of online banking and imaging. What used to be common practice, nowadays Dealers, Controllers or even auditors fail to take the time to look through cancelled check activity. This is one of easiest, yet most revealing internal audit procedures any person can do. From seeing payee names, who is signing, who is endorsing, to when and where items are being deposited, this is an exercise worth every minute dedicated to it.

· Bank Reconciliation Check: For dealers and operators who are trusting their Controller to complete the process, just ask them one day for the last two months bank reconciliations. For the vast majority of controllers, this will not be an issue, however for some this could be very revealing. As an operator, you want to make sure these are being completed (there should be no delay in getting you a copy of these), secondly, you want to make sure they appear to be completed in earnest (test individual items on the reconciliation to validate them).

· Deals not in Accounting: Each DMS can provide you a report of vehicle deals which are not yet in accounting. Identify any deals greater than one week old and determine if the particular F&I Manager is holding or has failed to deposit customer funds associated with the customer.

Few things personally make my blood boil more than individuals lacking integrity who fuel their self-serving interests at the expense of others. The items above are just a handful of easy do-it-yourself internal audit checks that can be very revealing and at a minimum, can provide a great deal of peace of mind for dealers and managers. As Warren Buffet once said, “Only when the tide goes out do you discover who’s been swimming naked.”

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