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Welcome to NCM's Up to Speed Blog

Stop Embezzlement Before It Starts

Written By: Lindsey Quinn
Posted on October 06, 2016

The facts of the case are enough to make any dealer sick. After more than 10 years of “faithful” service, an assistant comptroller—and longtime friend—was discovered to have stolen nearly $2 million.

A staggering employee betrayal

Dealer O.C. Welch uncovered the theft when he and the service manager at his South Carolina Ford store noticed a discrepancy between actual gross profits and the anticipated results from the number of repair orders. Welch and his staff dug deeper and found more issues; a police investigation would later uncover that employee DeAnne Ogden had perpetrated an embezzlement scheme that spanned nearly a decade.

While Odgen has been sentenced to eight years in prison and ordered to pay restitution, it is unlikely that Welch will regain the full amount of the funds stolen from him. And, although he reports that the dealership is doing well, a two million dollar loss is a heavy burden for any business to bear.

But what, exactly, are business owners like Welch supposed to do? They need trust to run the business, but that very same trust can lead to problems like this. We asked Frank Sheets, 30-year automotive veteran and Intelligent Dealer CEO, to share his thoughts on the case and explain how other dealers can better protect their biggest investment.

Understanding financial crimes

“The first thing you need to remember,” Sheets said during an exclusive interview with NCM, “is that embezzlement like this isn’t common, and I don’t think it happens that often. But, when it does,” adds the automotive expert, “it’s a lot of money, and it puts dealerships out of business.”

Financial crimes may be rare, but they pose a significant risk to your dealership. According to the Association of Certified Fraud Examiners’ (ACFE) 2014 Global Fraud Study, the organizations in their study lost 5 percent of their revenues each year to fraud, representing an estimated global loss of nearly $3.7 trillion in 2013. Smaller businesses, such as automotive dealerships, are disproportionately impacted by occupational fraud, partly because they lack the financial safeguards of larger companies. Certain types of financial fraud are easier to commit in a smaller business environment with lower oversight. In ACFE’s study, 77 percent of all the frauds were perpetrated by individuals in one of seven departments: accounting, operations, sales, executive/upper management, customer service, purchasing, or finance.

Sheets cautions us, “You have to be careful, though, because it can feel like we’re painting everyone in the business office as a potential criminal.” Most employees, he adds, are dedicated to the success of the business. These three key ideas can save your dealership millions.

Preventing embezzlement at your dealership

Oversight is what will prevent costly fraud at your dealership. Sheets comments, “If this woman stole $2 million, she must have had a hell of a lot of small vendor pay … because, if it were $20,000 per vendor, the dealer would have recognized it.”

And that’s exactly what happened. Ogden, who pleaded guilty last month to charges related to the crime, had carefully orchestrated the theft. Over the years, she added fake vendors into the dealership’s accounting system, then slowly siphoned off funds when she issued payments for their services. News sources report that she entered most of the fraudulent accounts as parts vendors.

The dealership had a financial review process—otherwise, the crime would never have been detected—but the fraudulent transactions were so small that they escaped notice.  With the right software, Frank explains, that wouldn’t have been a problem: “I’d say that 99 percent of the time, a dealer using LiveAudit would have caught it.”

The right financial tools minimize fraud risks

LiveAudit, a new dealership financial management system, has built-in fraud detection tools that can prevent such cases. Specifically, the system identifies and assigns all vendors to one of two categories: recognized or unrecognized. When the dealer or other financial manager logs into the system, he or she can quickly see what payments have been scheduled under each category.

“LiveAudit,” Sheets explains, “would have flagged every one of those fake companies as an unrecognized vendor. And obviously, the dealer, at some point, would ask the questions: ‘What are we doing? Who are all these people I don’t recognize?’”

Equipping dealers with the knowledge and tools they need to run their business better is a critical component of Sheets’ work, he tells us. “That was part of the deal. You know, we talk to dealers all the time and everything we’ve done has been based on pain points and feedback. So many dealers were asking us to help them manage their expenses … and one of the things that continually came up was ‘make sure you put some fraud protection in there, whatever you can do.’ So, that was top-of-mind.”

Learn more about LiveAudit and other operational tools for your dealership.

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