In a recent post on the blog for Somerset CPAs, the theft of approximately $95,000 dollars from a dealer in the southeast is reported using a simple  scheme that went unchecked due to the lack of internal controls at the dealership.

According to our own research:

• It is estimated that internal theft costs employers $9 per employee per day. This amounts to $280,000 a year for dealerships with 100 employees.
• The dealerships that are most vulnerable to this type of theft are those with fewer than 100 employees.
• 50% of all dealers experienced theft during a 5-year period during the 90’s and that percentage has been growing at an alarming 5% annually. This means that the majority of dealers can expect to be victimized by theft of some type every year.
• Reports indicate that 80% of all dealership employees have been involved in some sort of theft from the dealership where they work during the last 5 years.
• Theft or fraud is most likely to occur in departments where cash or other valuable assets are handled but there is significant risk in all departments.
• It is reported that the risk of loss is greater where poor or nonexistent internal controls are in place.
• 95% of all losses paid by insurance carriers results from actions taken by employees.
• $100,000,000 worth of vehicles is stolen from dealerships every year. $50,000,000 worth is recovered and $50,000,000 is paid for by insurance.
• Good loss prevention programs and internal control systems have been proven to halt loss experience growth of 10-15% annually and actually reduce losses by 30%

Theft schemes have been discovered in virtually all departments of dealership operations. The ingenuity of perpetrators is the ONLY limit on the manner in which dealers are being defrauded.

Dealership size isn’t a reliable indicator of the potential risk. Large dealerships with many employees offer a crowd for the dishonest to hide in while small dealerships don’t have the personnel and systems in place to prevent fraud. Theft and fraud rates grow in good economic times because less attention is focused on losses when times are good and they increase in hard economic times because thieves work harder at their craft when the need is the greatest.

You can take steps to reduce your exposure to employee theft by having a risk assessment of your dealership done. Your CPA should be able to provide you with this service, reviewing all aspects of your dealership operations and providing you with an assessment of the risk as well as some recommendations, which should include some type of demo plate control system, for managing and reducing those risks.

Rex Collins of Somerset CPAs also noted that,  “dealers should engage a CPA who is familiar with the industry…”. Sometimes the best advice is the most basic.