Pub. 4 2014 Issue 3

10 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com As the U.S. economy has begun to recover from the Great Recession, many dealerships have relaxed a little. Cash has begun flowing again, and it isn’t necessary — as it was for a while — to be quite so careful about spending. That’s good news, but there is a negative aspect: as dealerships relax, they become more susceptible to fraud. Fraud Protection for Dealers Y ou already know how hard the economic downturn was on dealerships, but now the U.S. love affair with cars and trucks has picked up again despite a weak economy and high unemployment. Why? No one knows for sure, but at least three factors have possibly contributed: pent-up demand from the years when so many people decided to drive their vehicles longer instead of replacing them; a continuation of extremely low interest rates, which makes more car available for less money than would otherwise be the case; and lending standards that encourage people to act. Whatever the reason, the fact is that ready cash attracts fraud. And right now, that is exactly what many dealerships have to offer. Unfortunately, it isn’t possible to eliminate the problem completely, but there are some steps that can be taken to reduce the amount of risk. Implementing some controls is far less costly than the alternative. By taking the right steps, you will be able to better protect your dealership, and you might also be able to prevent losing what could be a substantial amount of money. The Report to the Nations on Occupational Fraud and Abuse for 2014 has some grim statistics you should be aware of: • The typical business loses five percent of its revenue to fraud every year. That’s a nice low percentage, right? Here’s the problem: on a global basis, that works out to a potential fraud loss of almost $3.7 trillion. • The median amount of money lost was $145,000, but 22 percent of the cases involved a minimum loss of $1 million or more. • The median amount of time between the beginning of a fraud and its detection is 18 months. • It’s hard to get the money back. Fifty-eight percent of the victims who were surveyed for the report had not gotten back any of their money; only 14 percent recovered everything. • Seventy-seven percent of all frauds occur in just seven depar tments: accounting, customer ser vice, f inance, operations, purchasing, sales, and either upper management or executive management. • The smaller the business, the greater the impact of the losses that take place. Small businesses face specific fraud risks and have disproportionately large losses. Losses rise as a result of two things: the involvement of highly placed individuals in the fraud, and collusion between employees carrying out the fraud. • Employees are responsible for 42 percent of occupational frauds, with a median loss of $75,000. For middle managers, the percent is 36 percent, but the median loss rises to $130,000. For owners or executives, the percentage is only 19 percent of all cases, but the median loss is $500,000. • Collusion has a similar effect. If one employee commits fraud, the median loss is $80,000. For two perpetrators, the median loss goes up to $200,000; for three, it is $355,000; for four or more, it is more than $500.000.