There is Fraud in your Dealership.
No? How do you know? I want you to take 2 minutes and of the following choices rank what you think are the most effective methods to detect fraud. Your dealership is worth 2 minutes and the answer may surprise you. Choose the top two methods of detecting fraud from the following list.
Step 1 – Choose your top 2
- External Audit
- Internal Audit
- Management Oversight
- Surveillance and Monitoring
- Notification by Police
- Confessions
- Tips
- IT Controls
- By Accident
- Account Reconciliations
- Document Examination
Step 2 – Assign Percentages
Now that you have the two best methods in your head, just assign a percentage as to how often they are the method that discovers the fraud in comparison to all others.
Step 3 – Compare your results
The ranking of initial detection can be found in the Report to the Nations published every other year by the Association of Certified Fraud Examiners. You can get your own free copy at http://www.acfe.com/rttn/rttn-2010.pdf
1. Tips 35.8%
2. Management Review 15.4%
3. Internal Audit 11.6%
4. By Accident 11.2%
5. Account Reconciliation 8.2%
6. Document Examination 6.0 %
7. External Audit 5.2%
8. Surveillance and Monitoring 2.6%
9. Notified by Police 2.5%
10. Confessions 1.0%
11. IT Controls .5%
I am always humbled that an audit we conduct (ranked #7) as CPA’s has less chance of detecting fraud than by accident (ranked #4), but as you know that is not what an audit is designed to do. Think about that when spending your accounting dollars and choose your scope of services wisely. This report also tells me that a very simple and powerful tool is not being used by many dealers, a Whistleblower/Tip Hotline. This accounted for over 35% of all detected Fraud
Many years ago I worked for a National Bank, and one item that was at the bottom of every HR document was the Anonymous Whistleblower Hotline. While that policy was quite robust as you would imagine from a large national bank, it doesn’t have to be that complex.
First of all, do you have a policy on tipping off management or ownership about fraud? If so, are the employees aware of it? What is the process?
If not, I strongly recommend that you implement one. Just look at the data, of everything that you can actually do as an owner/operator, nothing will give you the results like a tip hotline.
Now, other methods may be good in the general course of business being that they may be Preventive, but having a tip policy in place, and following it costs you very little money and almost no time.
There is much more to this discussion than I will talk about here, but please call me if you have any questions. I can also refer you to credible companies that provide this service on an outsourced basis.