Pub. 1 2011 Issue 4

11 T he specific inherent fraud risk factors of an industry are specific to that industry due to the nature of that beast, and may differ from other industries. Fraud risk factors in the context of this article refer to risk factors giving rise to the potential for misstatements within a company’s finan- cial statements either arising from intentional fraudulent financial reporting or misappropriation of assets. In my opinion, the following would be the top 10 inherent fraud risk factors applicable to a typical U.S. family owned automobile dealership: A dealership consists of multiple businesses within one. New vehicles, used vehicles, service, parts, body shop – each of these run as independent businesses under one roof. This arrangement makes things extremely complicated, as each department has its own individual fraud risks factors, making it more difficult to monitor and manage the overall organization. Dealership capitalization is typically in mil- lions. It takes significant funds to capitalize a dealer- ship; this means there are significant funds available to take. Most assets are highly marketable. This tran- scends dealership assets such as vehicles and parts (although both can be vulnerable to fraud). From names and phone numbers to social security num- bers, customer information is vulnerable as well. Dealerships have a high volume of finan- cial transactions, big and small. There are a BY THE NUMBERS BY JAMES EAGAN CPA, PARTNER AND AUTOMOTIVE CONSULTANT, PLANTE & MORAN PLLC Automobile Dealership Industry Inherent Fraud Risk Factors Webster’s Seventh New Collegiate Dictionary defines the word “inherent” as: “Involved in the constitution or essential character of something.” In other words, “the nature of the beast.” Q risk factors — continued on page 12