Regulations , ,

Steve Bragg

THE car business has been and always will be vulnerable to fraud. Various types of fraud are committed for different reasons, but its results are always costly and destructive.

Those committing fraud combine motive with opportunity to circumvent any controls that may be in place, and usually have little trouble in justifying their actions to themselves and their co-conspirators.

Fraud in car companies often occurs in high-budget fast-moving departments such as marketing, where printing and promotional product invoices can be difficult to reconcile with actual stock – especially if a supplier and internal financial controller are in cahoots with the fraudster.

In dealerships, fraud tends to vary from direct theft via credit cards, to misuse of fuel cards, distortion of various sales results to increase commissions and other bonuses, to literally stealing cash from the till or company account.

According to Steve Bragg, director motor industry services for KPMG, “fraud risk assessments are critical in identifying potential threats and control system weaknesses that provide opportunities for fraud”.

“Dealerships should implement robust controls and systems to prevent or detect fraudulent behaviour,” he said.

According to Mr Bragg the occurrence of fraud in the car industry is far higher than it is generally perceived to be.

“It’s common knowledge that dealerships are susceptible to fraud,” he said. “But many dealers apparently believe they are immune.”

Hard facts on the scale of fraud in the car industry are difficult to come by but some of the more brazen efforts at car companies in the past have amounted to several million dollars before being discovered, and one notable case settled last year was north of $30 million.

The scale of fraud at dealerships falls typically between $5000 and $50,000, but the effect of theft even on that scale can be profoundly damaging to a business when the amount of sales required to recoup the money lost is considered.

The cost is often not just financial, with other fallout encompassing the business’ reputation and relations with other companies, staff morale and, in some cases, the overall value of the defrauded entity.

Prevention is better than cure, and Mr Bragg is adamant that it is essential to prevent frauds and limit the financial cost as well as the collateral damage.

“By limiting the opportunity to commit frauds you limit your exposure.” he said.

Another important factor is how management deals with fraud once it is discovered as the attitude of management at the most senior levels will affect the culture of tolerance or otherwise towards dubious activity within the organisation.

Once fraud is detected the perpetrators are typically sacked as a prelude to criminal or civil charges being brought. Merely issuing a warning or reprimand is generally seen as sending the wrong signal.
More soon.

By Daniel Cotterill

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