Fraud can happen to anyone


Paula Domm

What motivates employees to defraud the company for which they work? They try to rationalize it, saying they are justified. It is the responsibility of the controller to ensure there is no opportunity for anyone to have the ability to misappropriate cash or company assets.

Statistics provided below are from a recent presentation to the Secretary Treasurer’s Association by an accounting firm.

Statistical Profile
-    69 per cent of fraudsters were between 30 and 49 years of age.
-    75 per cent of fraudsters were men.
-    Individuals holding either a professional designation or university degree committed 26 per cent of the reported frauds.
-    73 per cent of them acted alone.
-    69 per cent of frauds were committed internally.
-    62 per cent of frauds were committed at the staff level. 22 per cent were from the ranks of senior management.
-    Prime time for frauds: when employees have been with the company for three to five years.

Where Do Frauds Happen?
Forty-five per cent occur in the operational departments such as your parts and service departments. Customers and suppliers usually assist one-quarter of these frauds.

If there is opportunity, there is fraud risk. Most losses are small, giving the fraudster the belief that their theft will slide under the wire and go undetected.

How Do We Protect The Dealership?
By being proactive, diligent, checking up on errors, monitoring what your employees are doing.
Ask yourself these questions:
-    Who has access to your cash drawer?
-    Who has access to your parts storage areas?
-    Are monthly parts inventory checks being done and are their shortages?
-    Are there shortages in cash on a regular basis?
-    Who has access to the accounts?
-    Is there opportunity for someone to post entries to your general ledger without your knowledge?

As controllers, the responsibility often rests on us to be able to recognize a possible fraud risk and/or act. There are often red flags that could possible alert us to a fraud.  

Red Flags

-    Problems or delays in getting requested information.
-    Significant or unusual changes in suppliers or customer.
-    Transactions, which lack documentation or normal approval.
-    Employees hand-delivering cheques.
-    Customer complaints about delivery and recoding of payments.
-    Susceptibility of assets to misappropriation.
-    Lack of attention to controls.
-    Poor computer file access controls
-    Poor computer password change controls.

Personnel Red Flags

-    Works long hours. Rarely takes vacations or takes very short ones.
-    Living beyond means.
-    Dissatisfied or frustrated with job.
-    Unusually close relationship with supplier.
-    Severe personal financial losses.
-    Addiction problems – alcohol, drugs, gambling.
-    Change in personal circumstances.
-    Change in behavior.
-    Outside business interests.
-    Consistently rationalizes poor performance.
-    Sees “beating the system” as an intellectual challenge.
-    Provides unreliable communications and reports.

The accounting firm representative gave our membership an example of a controller who worked their way up through the accounting department at the dealership to acting general manager. He quit his job when management began to question him regarding year-end financials and reviews. He also used the payroll system to pay himself “bonuses,” thinking he deserved them and no one would ever know.

Controllers have a tremendous responsibility to the dealership. Their position is one of great trust. I remember one incident of fraud a number of years ago regarding another controller who defrauded their dealer.

My first response was to take some time off and have my owner call in a forensic accounting team to check the financial records. While they declined my offer, I don’t ever want my employer to ever worry about trust with me, nor should you.

How Can We Be Proactive?

- Help create a strategic, practical and effective process to minimize organizational risks.
- Review, implement and manage an effective system of internal controls.
- Watch your accounts and what those in your department are entering into your accounting system.
- Review current business processes and employ strategies that identify risks and how these risks may be minimized.
- Ensure your employees only have access to information they require for the job they do.
- Review your IT system and install monitoring equipment (firewalls) so you can ensure no one has found a “back door” into your software.
- While no dealer wants to worry about employee fraud, it is evident that this is a big problem and dealers need to be aware of how it’s happening and what measures to take to prevent it and guard against it.
- Controllers have access to every aspect of the dealership. It is the controller’s due diligence that tells them if something’s not right and their responsibility to take their concerns to the dealer principal.

Paula Domm is the controller at Hanover Chrysler and is the president of the Secretary Treasurer’s Association, which is always looking to increase their membership. Please contact her at for information regarding this article or for more information on the STA.