When a dealership is profitable, it is easier for fraud to go undetected. A common response from dealers is that they do not have the resources, such as time, money or employees, to prevent or detect fraud. However, there are several simple actions a dealership can take to minimize the risk of fraud. It is much easier and more cost effective to prevent a fraud than to detect it after the fact.
The following are some procedures that can assist in safeguarding your store from fraud:
Cash
- Physically check that all bank accounts are reconciled.
- Review old reconciling items on bank reconciliation and determine how/when resolved.
- Surprise reconciliation of petty cash and cash drawer balances.
- Agree the daily cash received by the cashier is validated to a deposit slip.
- Prevent employees from cashing personal checks from the cash drawer or petty cash funds.
Accounts Receivable
- Review the ageing of all receivables balances and research the older items.
- Review receivables that are written off and ensure proper authorizations.
- Review credit card refunds and ensure proper authorization.
Inventory
- Review the reconciliation of the open parts account and agree the balance to the manufacturer’s statements.
- Compare general ledger balance for parts inventory to the parts pad.
- Count the tire inventory and agree to the general ledger.
- Review the open repair order and missing repair order reports.
Accounts Payable
- Review the accounts payable schedule for fictitious vendors or vendors that are known to provide ‘kickbacks’ to purchasing agents.
- Review check register periodically and ask questions about the validity of payees. Choose a sample of payees and examine the documentation supporting the check.
- Review a sample of purchase orders to ensure proper authorization.
Other Items
- Obtain payroll register and ensure that each employee actually works at the store.
- Review pre-paid and accrual balances for reasonableness.
- Review the adjusting entries in the general journal and ask questions. Also, limit the use of the general journal.
Most dealerships do not have a large enough staff in place to sufficiently segregate the duties of employees. The easiest and most effective way to deal with this issue is with management oversight. It can be as simple as asking for reconciliation of the open parts statement and agreeing the balance to the manufacturing statement. It is important that an independent individual, such as the General Manager, CFO, or another key employee, perform these spot checks. You will be surprised what you will learn. You may not be knowledgeable in the process that you are reviewing, but ask questions and put your staff on alert.
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If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
