By Scott Worthington, Director of Product Planning, Reynolds & Reynolds
A lot of dealers think “Employee theft won’t happen to me” or “I trust my employees,” but the numbers around employee theft tell a different story.
I read an article recently about a dealer who lost nearly $2 million to embezzlement from his controller, and I couldn’t help wondering: Just how common is that?
According to the Association of Certified Fraud Examiners, 88 percent of businesses who experience theft or embezzlement don’t get all their money back. At least some portion of the lost money is gone for good.
As a matter of fact, one in four theft cases results in losses of $1 million or more. Furthermore, 51 percent of dealers have confirmed they experienced theft or know a dealer who has.
However, what’s possibly even more disconcerting is the 49 percent who think there is no embezzlement at their dealership. If you don’t have solutions or processes in place to monitor for that kind of activity, how do you know for sure that you’re not being stolen from?
When you leave your house in the morning, do you lock the door? Most people would answer in the affirmative. Now, does that mean you don’t live in a safe neighborhood? Not necessarily. It just means you’re being cautious and reducing the risk that someone will come into your house and rob you.
We typically think of theft as a burglar in a black mask breaking in from the outside when more often than not a trusted employee you consider a friend could be responsible for the biggest losses you ever experience. With a quick internet search, one can find numerous stories of theft involving employees dealers trusted.
In one such story, the dealer expressed how financially devastating the situation was, but what bothered him even more was the mental and emotional drain of knowing he trusted someone who took advantage of him.
Reducing the Risk of Theft
You can’t be everywhere all the time, and simply hiring the “right” people isn’t enough either, because not everyone who becomes a thief comes into your operation with nefarious intentions from the start – all sorts of circumstances outside your control can play a role in bringing someone to that point.
There needs to be a better way to check for possible suspicious activity. You may be thinking, “That’s why I pay a CPA.” However, you might be surprised to learn CPAs don’t actively look for embezzlement. Their job is to ensure your dealership is using generally accepted accounting procedures.
Now, you could hire an auditor if you suspect something is going on but, on average, dealership theft takes 18 months to find. In other words, you could stand to lose hundreds of thousands – maybe millions – before you find the theft.
To ensure your dealership is reducing your risk of theft, you need a dealership-wide monitoring solution that constantly analyzes system data for unethical business activities. This system should monitor your day-to-day operations and alert you when suspicious activity has been found.
What constitutes suspicious activity? Simply put, a system that searches a variety of transactions throughout the dealership (made possible if the dealership is using a single database for every transaction) can identify deviations from your historical averages and send you notifications.
You can choose to investigate further or ignore on a case-by-case basis while the solution continues its work of gathering and comparing information, but the point is you’ll be armed and ready to identify patterns that are outside the norm. You’ll also have ample documentation readily available if and when the time to take action arrives.
Employee theft might be an unpleasant reality to contemplate, but it is a reality all the same. The dealer best-equipped to deal with it is the dealer who takes a proactive approach to monitoring dealership transactions before the worst happens.
How much will it take before you lock your dealership’s doors?
About the Author
With over 28 years of experience with Reynolds, Scott Worthington started as an ERA® trainer in 1991. His other roles included being an original member of the Reynolds Consulting Group, running the Service Readiness organization, Marketing Director, and ERA Solutions Executive. Currently Scott is Director of Product Planning responsible for the ERA-IGNITE and POWER platforms, Business Office applications, Data Archiving, Reporting and Analytic Solutions, and ReyPAY®.