Further thoughts on fraud in the automotive industry

Our recent blog covered the topic of teaming and lading in the motor industry – this is one common type of fraud but by no means the only one. You may wonder why, at your pre year-end audit planning meeting, your auditor queries whether there have been any instances of fraud during the year. It might seem a completely irrelevant question and one that has nothing to do with the audit but ask yourself, are your systems and controls robust enough to deter fraud ? Would you know if your employees were pulling a fast one, or your supplier was really who they said they were?


Cyber threats

Cyber fraud is probably the most common type of fraud reported on at present but despite the prevalence of news on the subject, prevention can be difficult. The danger with this type of criminal act is that it is ever evolving, business owners must constantly make their staff aware of the need to be sceptical, about everything. The parts supplier that writes to let you know they’ve changed their bank details, the email from the dealer principal requesting funds be transferred immediately, the call from the bank to say there is a problem with the weekly wages payment run – the last line of defence is always the member of staff dealing with the request, and often at a time when they are already under pressure. Robust It systems, up to date software and repeated staff training are key to detecting and avoiding this type of deception.


Misappropriation of assets

Multiple sites and franchises often means a significant number of employees in numerous different positions. Those that handle cash or goods are entrusted to pay the cash over to the company on the sale of an asset – unfortunately this is not always the case. For example an employee on the parts counter processes a cash sale for £100 but once the customer leaves, they process a credit note for the same amount, the system books the part back into stock and the books appear to be straight, whilst the employee has pocketed the cash. Often, these types of fraud start off small but, left undetected, can escalate as confidence grows. Regular reviews of credit notes and refunds issued, spot checks on perpetual stock systems, staff rotation and supervision can all help to deter and detect such activities.


Cash and commission

What is to stop your salesman referring a customer to another bodyshop or service centre down the road, where their friend works and who pays them a “commission” for the referral ? How would your salesperson respond to the question “How much for cash ?” Back handers are possibly one of the most difficult types of fraud to spot as they occur outside of the dealer management system so may not show up on variance reports and statistics. Strict policies should be put in place, and visibly enforced, that such activities will not be condoned, along with nurturing an environment for other employees to report suspicions without fear of repercussion. Inter-department referrals should be encouraged and monitored to highlight deficiencies.


These are only a few examples of the risks faced by motor dealers on a day to day basis. The key message is to remain vigilant and implement robust systems and controls that are regularly policed and enhanced where appropriate.


If you would like to discuss fraud in more detail or you would like to speak with a member of our team, please contact Ginni Cooper or call on 01772 821021 to be put in contact with a member of our Motor team.


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