Teaming and lading can either be a cash fraud or a way of covering over errors.
If a cash fraud, it can be perpetrated by any staff member with access to cash, so sales staff taking deposits as well as service and part advisors who can take cash.
The basics
Member of staff receives cash which they keep for themselves.
A debt is left due in the company’s balance sheet. A subsequent cash receipt is allocated to the original debt and in this way an over age debt may never become apparent.
The most recent case of this type that we observed was that of a sales person who kept a deposit from a customer which was then used to feed a gambling habit.
As the sales person was able to make excuses the fraud went undetected for several months and the amount taken began to increase. Eventually the sales manager was challenged on the size of the debt outstanding and the fraud was uncovered.
The sales person had no assets and so nothing could be recovered.
This type of fraud can also be used to cover over errors which can be even more costly for a business. One of the typical errors we see occurs when a dealer has poor processes over vehicles transferred to another dealer; so the vehicle is transferred, but the manufacturer debits the originating dealer in error. This error should be picked up in regular monthly manufacturer reconciliations if properly performed. However, in one of the biggest examples we’ve seen a branch accountant was struggling with the amount of work and didn’t want to ask for help. There was a lack of regular reconciliation of the ledger balance to the manufacturer statement, and no review procedure in place. The branch accountant didn’t want to admit they had not been doing their job properly and so, to avoid the ageing looking odd, the oldest invoices were matched against any similar payment. Eventually the payments outweighed the invoices but this could be explained as simply timing differences. It wasn’t until a change of auditors to a motor trade specialist (who insisted that the account was properly reconciled) that the error was discovered. The business needed to provide over £500k in its accounts, although over a number of years they eventually managed to identify some of the amounts and recover them from the other dealers who were wondering how they had received the vehicle for free!
Solutions
Most solutions rely on strong initial controls rather than means of detection through policies such as:
- Strong segregation of duties between the person receiving the cash and it being posted onto the system.
- Full reconciliations of all balance sheet accounts on a monthly basis, with a review of those reconciliations being carried out by appropriately qualified member of the management team.
- For larger businesses, the use of an internal audit function to provide some independent verification.
- Insisting on key personnel taking their holidays (these types of fraud quickly unravel when somebody else is tasked with running the ledgers in their absence).
In addition, Management need to be aware of lifestyle changes and rumours amongst the team which would drive the temptation to defraud. We have seen various examples including expensive clothes, holidays etc., rumours of gambling or drug addiction, marital problems etc.
Paul Dobson joined us recently having worked with a specialist motor trade practice since 2003. He has managed a wide range of portfolio clients, ranging from small to very large organisations. His previous roles have also seen him review struggling dealers across Europe and make recommendations on financial and operational performance to both the dealer and their OEM partners. Paul is a specialist in fraud prevention and detection within motor trade businesses.
Should you have any questions about this blog, please do not hesitate to contact Paul or a member of the team. Alternatively, for more of our commentary on key automotive sector issues, visit our automotive industry issues section.
