The importance of fraud risk assessments in dealerships

29 January 2018

Last month saw the sentencing for fraud of an accountant who had worked for Evans Halshaw in the North East of England. Now, you would expect a business the size of Evans Halshaw to operate with a high level control environment and indeed the fraudulent activity in this case was apparently of a reasonably sophisticated nature involving phoney transfers of cars, and real transfers of cash, between related entities.

It’s a salutary reminder though of the importance of fraud risk assessments, which address all of the key processes in a car dealership, and of operating a culture where there is zero tolerance for fraud even at a low level. These conditions in a business not only increase the chances of fraud being detected but also, and more importantly, fraud being prevented. With this in mind, here are a few things to think about:

Attitude to “whistle blowers”: It’s unlikely that a fraudster won’t arouse some suspicion amongst their fellow employees. Bringing suspicions to the attention of management can either result in the whistle blower being marked down as a trouble maker or them being supported by management. This is why it’s important to get the culture right and to set the tone at the top of the business.

Segregation of duties: You need to ensure that no one person has too much control over any one area, for example the person recording the company bank account transactions should not be the same person who performs the monthly bank reconciliation. You might consider training people to perform multiple tasks so that they can effectively step into a colleague’s shoes when that colleague is sick or on annual leave (incidentally, with that in mind, it’s good practice to require employees to take at least one fortnightly holiday a year so that there’s a good chance of anything untoward being uncovered).

Internal audit: The internal audit process is potentially extremely valuable for a number of reasons. It can be used to design/improve your system of internal controls, it can test the implementation of these controls, and it can serve as a useful deterrent to any would be fraudster.

Journalists: The seemingly innocent act of entering a journal between nominal ledger accounts can hide a multitude of sins. Period end journals (and indeed mid period) journals should be subject to regular scrutiny so that it can be established that the journals being entered are necessary and accurate.

It is appreciated that not all motor traders can afford to put in place a high level control environment but there’s almost always room for improvement that won’t bring massive cost implications.

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