Pub. 2 Issue 2

14 www.glancda.org than would otherwise be the case; and lending standards that encourage people to act. Whatever the reason, the fact is that ready cash attracts fraud. And right now, that is exactly what many dealerships have to offer. Unfortunately, it isn’t possible to eliminate the prob- lem completely, but there are some steps that can be taken to reduce the amount of risk. Implementing some controls is far less costly than the alternative. By taking the right steps, you will be able to better protect your dealership, and you might also be able to prevent losing what could be a substantial amount of money. The Report to the Nations on Occupational Fraud and Abuse for 2014 has some grim statistics you should be aware of: • The typical business loses five percent of its revenue to fraud every year. That’s a nice low percentage, right? Here’s the problem: on a global basis, that works out to a potential fraud loss of almost $3.7 trillion. • The median amount of money lost was $145,000, but 22 percent of the cases involved a minimum loss of $1 million or more. • The median amount of time between the beginning of a fraud and its detection is 18 months. • It’s hard to get the money back. Fifty-eight percent of the victims who were surveyed for the report had not gotten back any of their money; only 14 percent recovered everything. • Seventy-seven percent of all frauds occur in just seven departments: accounting, customer service, finance, operations, purchasing, sales, and either upper management or executive management. • The smaller the business, the greater the impact of the losses that take place. Small businesses face specific fraud risks and have disproportionately large losses. Losses rise as a result of two things: the involvement of highly placed individuals in the fraud, and collusion between employees carrying out the fraud. • Employees are responsible for 42 percent of occupational frauds, with a median loss of $75,000. For middle managers, the percent is 36 percent, but the median loss rises to $130,000. For owners or executives, the percentage is only 19 percent of all cases, but the median loss is $500,000. • Collusion has a similar effect. If one employee commits fraud, the median loss is $80,000. For two perpetrators, the median loss goes up to $200,000; for three, it is $355,000; for four or more, it is more than $500.000. How can you protect your dealership? Putting in anti-fraud controls has a significant effect. It reduces potential losses and shortens the length of duration for the fraud. Just trying to stop fraud, in other words, is enough to make fraud less expensive and to shut it down more quickly. What are some specific anti-fraud controls? • Set a good example. The behavior of people at the top is copied by everyone else. If you’ve ever seen the difference caused by two very different people managing exactly the same people, you know this already. A good example does make a difference. • Train people so they know what the warning signs are. If you or someone else sees a warning sign that might indicate fraud, don’t make hasty assumptions. Look at it more as a reason to examine the situation a little more thoroughly. • Rotate jobs and have mandatory vacation policies. • Put in a tip line, and then advertise it on a regular and frequent basis. It will probably cost you something between $500 and $2000 per year, which is a bargain compared to what you could potentially lose. • Even though management reviews and a combination of internal and external audits are not as effective as having a tip line, that doesn’t mean they are worthless. Make sure reviews and audits are a regular part of dealership life. Since approximately 40 percent of all fraud cases are detected because someone gave a tip, that makes it at least twice as effective as any other method; the frauds uncovered through a tip line are 41 percent less expensive to the business as frauds uncovered by different methods, and the tips mean fraud detection takes place 50 percent faster than would be the case otherwise. CANYOUPREVENT FRAUDBY SCREENINGEMPLOYEESCAREFULLY?UNFORTUNATELY, THE ANSWER TO THAT QUESTION IS A STRONG “NO.” MOST PEOPLE WHO COMMIT FRAUD ARE FIRST-TIME OFFENDERS, AND MANY OF THEM HAVE WORKED FOR A PARTICULAR EMPLOYER FOR YEARS BEFORE BEGINNING TO STEAL.  Fraud Protection — continued from page 13