26 Jul

It always comes as a surprise to a dealer when they discover that an employee has stolen from them. And yet, when we ask what they do to monitor their employees and try to deter internal theft, we always get the “deer in the headlights” look. It happened again this past week. One of our client dealers couldn’t figure out why his profits were basically non-existent and he asked for our help.

What we discovered was frightening but would have been easy to spot had someone been monitoring the operation. The dealership manager had been posting a miscellaneous expense for fuel amounting to thousands of dollars every week even though the lot kept less than 50 vehicles in inventory and had a policy of keeping no more than a quarter tank of gas in each vehicle. This practice had been going on for several months and the fuel expenditure for the first half of 2013 was already 3 times what it was for all of 2011.

That story reminds me a great deal of the first BHPH dealership I took over. I was following a manager who had been guilty of stealing. That store had been set up with its own checking account that the manager could write checks on to pay bills. They also had a petty cash fund to pay smaller expenses. This manager was writing a check for cash and cashing it to replenish the petty cash fund daily but there were no petty cash payouts recorded.

Petty cash expenditures and miscellaneous expense expenditures are one of the most abused areas for employee theft. Buy Here – Pay Here dealerships tend to accumulate a great deal of cash and that much cash creates temptation. Another dishonest practice we see in this area is payouts for phony expenses. Typically, a fictitious company is created and then cash is paid to this company for a variety of supposed services including repairs, repossessions, etc.

Another common indicator of employee theft is excessive rewrites. In this scenario, a customer will make a payment in cash, which the employee will pocket and then rewrite the account to show it current. They will either give the customer a handwritten receipt or they will post the payment, give the customer their receipt and then reverse or delete the payment once the customer has left the dealership. Rewrites can also be used to manipulate delinquency so that managers or employees earn bonuses to which they are not actually entitled.

Sometimes the theft is accomplished using kick backs. A supplier will overbill the dealership and the dealership will pay the inflated bill. The supplier will then commonly split the amount charged in excess with the employee. Sometimes the employee gets the entire overcharge.

Employee theft is, for some reason, one of those areas that are not talked about nearly enough. Even at the largest meetings and conventions, you rarely see sessions on loss management. Perhaps dealers are too embarrassed to admit they had been taken advantage of. However, just because it isn’t talked about a lot doesn’t mean it isn’t happening. Every day dealers are losing thousands of dollars to internal theft.

And it’s not just cash that is finding its way into your employee’s pockets. We’ve seen cases where employees have taken oil, cleaning supplies, tires and even, in one case I am aware of, an entire car.

It seems as if the less involved the owner is on a day-to-day basis, the more prevalent theft becomes. Dealers who are at their store every day and are active in taking payments, talking with customers and the general operation of their business provide fewer opportunities for their employees to steal from them. However, not every dealer can be that involved. He may be on the road extensively purchasing inventory, have other business interests or, in the case of new car dealers, have a whole other dealership to run.

That is why it is important to have a loss mitigation program. You need to understand where employee theft can occur and spot the vulnerabilities in your operation. You must have a plan that eliminates as many of these opportunities as possible and a way to monitor those that you can’t get rid of entirely. Random spot checks on operations should be part of this occurrence. If you are the owner and you don’t have the time required, you need to employ someone from outside the dealership to assist you in monitoring the operation.

No one wants to believe their employees will steal from them. We all believe we have hired honest people. However, the temptation is great and sometimes our employees situations change and they become desperate. You are doing them a favor by eliminating as many of the opportunities to steal as you possibly can.