Pub. 4 Issue 2

14 www.glancda.org Fraud is a reality among every dealership nationwide. This is a tough, yet simple truth. Fraud is often not detected until after the crime has been committed. According to the Association of Certified Fraud Examiners (ACFE), the average time to identify fraud is 18months after the fact. Furthermore, roughly58%of cases haveno recovery whatsoever.[1] This statistic is chilling, as it indicates many organizations fall victim to significant loss with slight hope of financial repossession, regardless of fraud detection and response measures. Many times, business owners accept the risk, as they don’t want to pump additional resources into additional staff or other control-related activities (like internal audits). However, it’s important to understand what you do have control over along with some relatively simple, yet critical controls to implement. Who Commits the Crimes? Youmight be surprisedby themost common fraudster - the trusted employee. ACFE reports that 53% of employees committing fraud have beenwith the organization for more than 5 years, and more than half of fraud schemes are perpetrated by an employee between age 41 and 60. If fraud is occurring inyour dealership, it’s likely the perpetrator is a trusted employeewith access to account numbers, passwords, financials, etc. Unfortunately, it’s common for good people to make poor decisions based on circumstance. Internal fraud often happens when an employee finds himself/ herself in an ill-fated personal situation (i.e., divorce, medical expenses, financial difficulties, etc.). In fact, the “fraud triangle” - which is comprised of the three elements of rationalization, opportunity, and pressure – applies tomost cases of occupational fraud. If adealership employee is inapersonal bind (liningupwith the pressure element), and either rationalization or opportunity presents itself, the gateway to committing fraudopens. Therefore, when considering the fraud triangle, the only element the dealership has control over is the opportunity to commit fraud (whereas rationalization and pressure are outside the control of the business owner). To make fraud prevention measures a top priority, dealers must understand that trust is not a control. Strengthening Internal Controls to Prevent Fraud BY THOMAS ENGLAND