No business is safe from fraud, not even franchised auto dealers. The good news is that there’s always a way around it so that your clients can avoid becoming victims of this evil scheme. If your clients want to be protected from it, then it’s time to engage themselves in recognizing the different fraud risks within auto dealerships. Unfortunately, scams will exist continuously, so the best way to shield oneself from them is by knowing the risks to protect the business better.
Here are some of the fraud risks your clients may encounter, and we’ll share a few steps on how to handle them.
The Dealership May Be a Potential Hotspot for Black Market Items
The assets of every dealership include cars and their parts, which are extremely profitable. It’s common for dealerships to reconcile only once a year. Still, experts have encouraged business owners to do it often to ensure that no assets are leaving the property without your client’s notice. It’s also crucial that your client protects the personal information of its customers and ensures that no data leaks take place. A huge risk of the business closing would come about if the personal data of customers were leaked in a way that gradually worsened the situation and negatively affected the business’s reputation.
Poor Assignment of Duties Within Staff
It’s common for auto dealerships to be family-owned which often leads to the poor assignment of duties. Your clients’ employees may be wearing one too many hats, leaving certain responsibilities incomplete or unsupervised. If this is the case, there is a high risk of vulnerability for the dealership. This makes the business more susceptible to fraud, and immediate action needs to occur.
The Fraud Risk Doubles When There are More Businesses
A typical dealership has multiple businesses within one: there are old and new vehicles, parts, services, body shops, etc. If this is mismanaged, it creates an open space of vulnerability for your client’s dealership. Each department has its risk factors, making it trickier to manage and control. Your client needs to be aware of every single department and has trusted employees who are well-equipped to handle each singular sector.
An Overlooked Internal Operations Can Lead to Vulnerability
It’s inevitable for dealerships to overlook resources and other necessities involving internal controls. Your client needs to break this cycle to avoid high fraud risks entering their dealership business. Every year, or whenever something notable happens in the dealership, the internal controls should at least be evaluated.
Committing Fraud Can Happen Anytime
According to experts, fraud usually happens when three factors are present: pressure, rationalization, and opportunity. Pressure can be personal or work-related troubles that can add more stress to the individual. If the dealership is in a vulnerable state, then it presents itself as an opportunity. It won’t take long until the individual starts to rationalize things before acting upon them.
How Can Your Clients Protect Themselves From These Fraud Risks?
As soon as the risks have been identified, it’s time to do something about it. Here are three steps your clients should follow to avoid being a victim of fraud.
Take Charge
The most important step in preventing fraud is taking control and having a change of mind or attitude. Your client needs to commit to taking the issue of fraud seriously fully. Your client needs to clarify that risk management and proper procedures are very necessary. It’s not about doing everyone’s job but rather making sure everyone does theirs.
Effectively Manage the Dealership
Every dealership needs to have its risk management protocol. In your client’s case, it should be ensured that there are strict procedures and rules when managing the dealership. Pay attention to the staff, document policies, and ensure that these are understood and followed by your client’s employees. Ensure that there are consistent inventory counts, reconciliations, and documented transactions. Maintaining consistency leaves no room for any possible fraud.
Leave it to the Experts
Accountants are here for a reason, and these professionals are well-equipped with dealing with fraud. They possess more than enough knowledge making it extremely difficult to commit. An accountant can also help your client with cash controls, inventory counts, duty segregation, etc. The end goal here is to construct a proper risk management system that will work best for your client’s dealership.
About Aegis Specialty Dealer
Your used auto dealership clients will benefit considerably from the risk protection that Aegis Specialty Dealer, a part of K2 Insurance Services, provides. Apart from the full range of insurance coverages, K2 also offers an ACH payment system that bills your clients directly. Call us today at (866) 429-1638 to find out how you can partner with the leading name in auto dealership insurance.
