Fraud in the Dealership

Dealers work with a lot of numbers. What acceptable number, in dollars, should a dealer set as the threshold before terminating or prosecution an employee for theft? Let me pose the question differently. What are you as a dealer willing to tolerate from one of your employees who is intentionally circumventing company policy for personal enrichment? And is the unethical behavior more tolerable if it

Dealers work with a lot of numbers. What acceptable number, in dollars, should a dealer set as the threshold before terminating or prosecution an employee for theft?

Let me pose the question differently. What are you as a dealer willing to tolerate from one of your employees who is intentionally circumventing company policy for personal enrichment?

And is the unethical behavior more tolerable if it only adversely impacts customers, not the dealership itself?

This may seem like an easy question to answer, since theoretically no dealer would tolerate any employee taking advantage of the dealership or its customers.

The reality is that this precarious situation presents one of the toughest questions a dealer can actually face.

We have all have heard and read stories about controllers, office managers, accounting personnel and cashiers who have been caught stealing thousands of dollars, even hundreds of thousands of dollars, sometimes millions of dollars from the very dealerships that support and trust them.

We ask ourselves what could have done to prevent this outcome from being realized.

By reading the headlines alone, we would believe that the majority of the theft that occurs in dealerships is perpetrated by accounting or clerical personnel.

Is it possible dealership accounting and clerical personnel have a certain predisposition for this behavior?

That's unlikely, because the fact is that there can be bad actors in other departments of a dealership. They just don't make the headlines as often.

The reason that there is not as much media coverage of theft schemes in other dealership departments is not because they go undetected.

It is also not because the money involved is insignificant. Instead, the lack of public discussion about thefts that originate in revenue-producing departments is because these events tend to be more complex and less clear-cut.

Thefts committed by accounting and clerical personnel generally involve a paper trail. An examination can reveal exactly how much was stolen and for how long.

In revenue-generating departments such as parts, service and sales, situations where cash improperly changes hands or disappears are much harder to detect, and even harder to track and substantiate once they are discovered.

Typically, frauds occurring in revenue-generating departments often go unreported and unprosecuted for three main reasons.

  1. Unlike in most accounting personnel fraud schemes, there often is a lack of quantifiable data or a paper trail to properly establish improprieties for the revenue generators.

    Items such as under-the-table cash for service or parts, kick-backs from wholesalers or vendors, and cash reallocation within deals in the sales and finance and insurance departments are difficult to prove, let alone quantify.

    Establishing and proving wrongdoing requires the party providing the cash to cooperate with the investigation. That's unlikely, due their participation in the scheme.

  2. There is a double standard in many dealerships regarding the way in which improprieties are weighed from revenue generators compared with accounting or clerical personnel.

    On several occasions, I have witnessed dealer reactions to potential thefts. When these dealers learned a cashier might be stealing a few hundred dollars, they immediately called the police.

    In case of a general manager, other manager or salesperson suspected of wrongdoing, however, dealers will sometimes try to rationalize the acts or treat them with a different standard.

    The initial reaction is to want to know what compelled them to act in this manner. This can be due, in part, to a fear of losing potential revenue from a good employee who does nine of 10 things right.

    Or, it may result from a belief that the individual in question deserves a second chance. Since many dealers worked their way up through the revenue departments, they might understand and be more tolerant of some of the gray areas these employees are confronted.

  3. In certain cases of fraud that is discovered in revenue-generating departments, dealers are hesitant to prosecute because they believe that negative publicity may drive away potential customers.

In particular are cases where sales or F&I personnel have taken advantage of customers or where customer funds were taken. Those situations leave dealers hesitant to pursue legal action.

In unwinding these schemes, the dealer would have to go back and contact customers regarding suspect transactions, which could open a Pandora's box.

And, based on my first-hand experience, it can be challenging to get local law enforcement and district attorneys to prosecute some front-end frauds due to their complex nature..

In the last year, I've witnessed:

  • A special-finance manager systematically manipulating customers and paperwork to embezzle over $250,000.
  • A general manager using the dealership's cash to provide a flooring line close to $1 million for a wholesaler with whom he was conspiring.
  • A service manager giving away service and parts to family and friends to the tune of over a $1,000 per month.
  • A parts manager making minus adjustments for high-priced and highly street marketable products to the tune of over $2,500 per month.
  • A general manager instructing accounting staff to not record certain expenses in order to enhance their pay plan by an extra $75,000 in compensation.

In all but the first case, these employees are still on the job. In the first case, the employee was fired but not charged.

A situation in which an employee intentionally circumvents dealership policies and controls for personal benefit is no different and no less harmful to a dealership than an employee taking money out of the cash register.

Phil Villegas is a Principal at Dealer Transactional Services, LLC, an affiliate of Morrison, Brown, Argiz & Farra, LLP, in Miami, FL. He can be reached at [email protected] or 305-318-8515.

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TAGS: Dealers Retail
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