Pub. 3 2013 Issue 3

10 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com • Most of the embezzlers took the money by either forging checks or writing unauthorized checks. • People whose jobs included f inance and accounting responsibilities were the most likely to embezzle funds; they accounted for two-thirds of the cases. • Women were more likely to embezzle than men. Again, they were the instigator in two-thirds of the cases. • Most embezzlement schemes went on for 4.5 years before anyone noticed that the money was gone, and shouldn’t have been. • Almost 20 percent of the businesses that were victimized were financial ones. Prevention Is the Best Remedy Ruth S. Crane, President of Auditors Inc., has a rule about embezzlement called the 10-10-80 rule: ten percent of the people who work for you will never steal; ten percent will always steal; and 80 percent will only steal under specific circumstances. When you hire someone, have civil and criminal background checks done, and consider doing credit checks, as well, since people who are dealing with financial problems are more likely to commit fraud than someone on a firm financial footing. In addition, make sure prospective employees know you are going to monitor bank and accounting records, then follow through. If an employee is going to have anything to do with money, then have that employee bonded. Why is prevention so important? Look at the legal conse- quences for embezzlement. Marquet International was able to determine the prison sentences for 166 of the cases they analyzed. Some people had no prison sentence at all. The worst sentence was 30 years, but the average sentence was only 46.4 months. The length of the sentence seemed to have a relationship to the amount of money that had been stolen until the amount reaches about a million. Once the money has been spent, the source has dried up, and a sentence has been served, it becomes extremely hard for the person who stole from you to repay the embezzled money. You may get some of the money back, but the chances are good that you won’t get it all, or even all at once. You aren’t going to be able to stop people from embezzling, but you can at least reduce the likelihood of it happening. The best idea is to minimize opportunity. Embezzlement is an oppor- tunistic crime. People are less likely to steal if they think they’ll be caught. Eliminate the opportunity, and you have probably eliminated the crime. Minimizing Opportunity The key to minimizing opportunity is making sure that one person does not have too much power or access to dealership funds. Segregate responsibilities and apply internal controls. This same advice would also apply, of course, to any small or medium-sized business. What are the right steps to take in order to prevent embezzle- ment from occurring? • Don’t rely on auditors. An internal auditor probably won’t find the problem. Financial statements are not designed to detect fraud, they are only meant to detect material misstatements. Much of what is stolen may be off the books; remember that embezzlement schemes are often quite creative. • Embezzlers are often found at the highest levels within your dealership, because that’s where the power is. Someone on a lower level probably won’t have the necessary power to get away with the theft. • Listen to employees. When fraud is detected, after all, it is usually because other employees have noticed something. • Pay attention. Embezzlers are not obvious. In fact, the typical embezzler is not someone you would expect to be an embezzler at all. Look closer at people who need money, like to spend large sums of money, or are good friends with vendors. Look for irregularities. • Continue to talk about the dealership’s values and ethics with everyone who works for you. Let them know where you stand on the subject, and make sure that you stand on firm, public, ethical ground. Do your best to hire honest people, and model that same honesty yourself. • Stay familiar with the money side of your business, and consider also having people outside your dealership check things periodically. • Don’t expect too much from employees. For example, signing a blank check is an invitation. Remember that unrealistically Q Employee Theft — continued www.reyrey.com/ClaimYourSpace. Own every opportunity with custom products from Reynolds Document Services. In The Dealership In The Home In The Vehicle Differentiate Your Store Reach Your Customers Deliver Your Message To learn how to claim your space, contact your Reynolds Document Consultant or visit