Dealership owners know that there are countless ways for internal business theft to occur. While theft schemes can become quite complicated and involve various assets of the dealership, cash is still one of the easiest assets to steal. For this reason, theft prevention efforts should not overlook the person in charge of keeping track of the cash: the finance controller.

Example 1: The check-cashing coverup

In a recent fraud case, a controller repeatedly cashed personal checks (often for several hundred dollars) at the dealership’s cashier window. The controller did this several times a month. Since the personal account that the checks were written on had a zero balance, the checks were returned to the dealership due to insufficient funds. The controller simply discarded the returned checks and adjusted the dealership’s bank account to cover them.

To avoid this kind of fraud, dealership owners or their representatives (outside the accounting office) should arrange to receive unopened bank statements directly -- at their personal residence, if necessary -- and review them regularly. This case also provides another reason why dealerships should not cash personal checks.

Example 2: The invisible raise

In another fraud case, a dealership’s controller -- a trusted employee who had worked at the dealership for years -- requested a raise. In response, the dealer and general manager began to review what the controller had been paid in the past.

The first thing that they discovered was that each of them thought the other was checking the controller’s monthly compensation, which was based in part on the dealership’s net profit. The result was that no one had reviewed the controller’s compensation, and she had consistently overpaid herself over a long period of time. The problem was clearly a result of miscommunication, but it was compounded by the fact that employee paychecks at the dealership were deposited electronically, without the need for signatures.

As electronic banking becomes more prevalent, dealerships should ensure that basic controls remain in place. Supporting documentation should be reviewed and approved before funds leave your cash account. Manager compensation calculations should be verified, and hourly pay rates should be spot-checked to ensure that they agree with the approved pay rates in personnel files.