Spring 2006 issue of Horizons

INDUSTRY AUTOMOTIVE Internal Controls for Dealerships

Dealers are some of the most trusting business people. It is this trust that helps them retain employees that are key to their business, but it also makes them very vulnerable to fraud. No one is immune. Studies show that most fraud occurs when individuals have motive and opportunity. Since motive can't be controlled, the only option is to avoid creating opportunity.

Changes in technology and business practices have opened up opportunities for fraud that did not exist just a few years ago.

The best way to avoid problems is to design controls around the position not the person. By looking at it this way, dealers can avoid the trap of thinking that they don't have a problem because the person they have in the position is a “trustworthy” employee. Employees that no one trusts almost never commit the biggest occurrences of fraud.

Here are a few questions than can be used to quickly check the strength of your dealership's internal controls over cash:

• Who is authorized to make wire transfers? • Who gets the monthly bank statements unopened? • Have you discussed “positive pay” systems with your financial institution? • Where is your blank check stock stored? • Are the monthly bank statements promptly reconciled to the general ledger balance?

Questions? Contact John Butler, Partner-in-Charge, Automotive Services Group 314-290-3333 john.butler@rubinbrown.com

26 • spring 2006 issue