Pub. 62 2021-2022 Issue 1

36 H ow does a dealer know when the controller is using the dealership’s funds as their personal bank account? The following report gives you some indication: A long-time and trusted employee is generally never suspected of embezzlement; however, checks and balances are necessary in every business. One dealer finally listened to his “gut” and fired an experienced “good ol ’ boy grandpa” controller beloved by the dealership employees. He volunteered his accounting skills at the local service club; and built his new home with Bible verses buried in the walls between the insulation and Sheetrock®. Looking back over the past four-plus years, specific events and circumstances have come to light that may now be shared and hopefully, give insight if not a reminder, to every dealer. This experienced dealership controller was given the authority to hire and train all of the employees in the accounting department. New hires who did not have accounting backgrounds or knowledge in the field were now hired and trained by the controller. A Fox in the Henhouse aka a Thief in the Dealership Unbeknownst to the dealer, petty cash was used by the controller as gifts and “spiffs” to employees. The controller also bought treats for the dealership employees with petty cash, allowing the controller to gain the goodwill and affection of the employees by spreading around the dealership’s cash. Following best practices, the dealer set up a two- party signatory requirement at the bank for dealership checks. The controller went to the same bank and set up a personal account. He soon befriended the bank’s employees, as he frequented the bank often. The dealer would sign one check, and the controller would create a second check in the same amount for his account. Soon, the two-party signatory requirement was ignored by the bank’s employees. Multiple dealership checks were written – some for the controller’s personal use. Dealership cash began to be deposited in the controller’s account. Customer cash was credited with the correct amount on the customer’s paperwork, but the bank deposits were later discovered not to match up with the customer’s receipt and paperwork, as cash found its way into the controller’s pocket. A CPA firm engaged by the dealer to verify and audit the dealership’s accounting system was beguiled into accepting the controller’s methodology and processes, such as allowing the controller to write the dealership’s checks, pay the dealership’s bills, and reconcile the dealership’s bank statements. Unfortunately, until this dealer followed his instincts and dismissed the controller and brought in new employees, the controller would have continued to misappropriate dealership monies. The controller’s theft finally ended with over $240,000 embezzled; however, the total amount of the misappropriated cash is still unknown. After a new accountant discovered numerous inconsistencies in the bank accounts, the local district attorney was contacted. The district attorney then brought in the White Collar Crime and Public Integrity Section of the Attorney General’s office. The controller is now a convicted felon and serving a seven-year sentence. By Karen Phillips