Neither of these internal controls would have necessarily caught the scheme above, but they are still an important internal control to consider. They can be done in conjunction with the monthly and yearly general ledger to parts pad reconciliation. • Segregation of Duties: The segregation of duties involves the assignment of responsibility in such a manner that more than one employee is involved in the processing of a transaction. If an employee’s duties include the ordering of parts, receiving of parts and controlling the communications with the factory and the accounting department, the risk of intentional or unintentional errors increases. A review of your dealership’s processes and internal controls, including the adequacy of segregation of duties in all departments, is key to protecting all dealership assets. • Review of Expenses: A dealership’s accounting department should always include in its month-end procedures a detailed review of monthly expenses to ensure expenses are in line with expectations and free of unusual trends. If your dealership does not prepare a detailed budget to include expenses and perform a monthly budget to actual analysis, your dealership is missing a valuable tool to monitor the dealership’s performance and take note of fluctuations outside of expectations. • Auditing Vendor Statements: Before bills are paid, vendor invoices and statements should be reviewed, compared to supporting documentation and approved. Comparing the FedEx charges to supporting sales documents and sales proceeds could have led to identifying these fraudulent actions. Parts receiving procedures and a purchase order system can help detect these schemes as well. • Review of Key Performance Indicators (KPIs): If the OEM continued to bill the dealership and the dealership continued to pay for these expensive parts without ever selling and relieving inventory, an ever-increasing parts inventory GL balance would exist. Paying attention to KPIs like frozen capital, days supply in inventory and performing inventory flux analysis could help to identify anomalies in the dealership’s financial statements. Unfortunately, like death and taxes, fraud in the business world is a certainty and can occur where it is least expected. Business owners should expect there will always be employees who are motivated enough, able to rationalize and can identify opportunities to commit fraud. Review your insurance policies and understand how instances of this type of fraud are covered and whether your coverage is adequate. Investing in the design, implementation and monitoring of internal controls is also a small price to pay to protect your dealership from the financial and emotional costs of fraud. Contact an ARB Auto Dealership Services team member if you would like to discuss this further. BY BRIAN DUPLESSIS LOSS PREVENTION SUPERVISOR, NHADA As the weather cools and daylight hours dwindle, NHADA member employees encounter seasonal hazards like slippery roads and reduced visibility. To help mitigate these risks, Loss Prevention offers two concise (10-minute) industry-specific video trainings designed to raise awareness and promote best practices for injury prevention. The defensive driving training covers hazards related to weather, aggressive drivers, security concerns and more, providing essential principles of defensive driving. The winter safety video focuses on driving precautions, slip-and-fall prevention and safe storm cleanup techniques. Loss Prevention also offers free on-site training on a wide range of safety topics. Additionally, all trainings are available online for a nominal fee. To schedule this crucial risk management training, contact your loss prevention representative or reach out to Brian Duplessis at bduplessis@nhada.com. DEFENSIVE DRIVING AND WINTER SAFETY TRAININGS 15
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