Fraud in the Motor Sector

Posted On July 3, 2017 By mhauk

Fraud is not just cyber in nature.

The threat of cyber-crime is prevalent and the motor industry is no different. Digitisation and changing consumer behaviours are altering the dealership landscape. News of click to buy cars online and virtual reality showrooms are just an indicator of where the motor industry is headed. Whilst business owners must be aware of, and prepared for, the menace of cyber-crime, the “old fashioned” methods of fraud must not be overlooked. As an employer of people, the risk of misappropriation must always be considered.

A common type of fraud is teaming and lading. This can involve cash or be a way of covering up errors. Where members of staff have access to cash, be it from deposits, service or parts sales, this type of fraud can occur. In summary, the person handling the cash pockets it for personal use and does not record the receipt in the company’s books, leaving a debtor due from the customer. When another receipt comes in, this is allocated against the first debtor balance and so on and so on. Such a process is continued until either the original amount is replaced, or the fraudster is caught. Often the amounts involved start off quite small, but can quickly escalate with increased confidence or perhaps a need to settle some other liability. The effect of such a fraud on a business can be significant, particularly if funds cannot be recovered due to them having funded other habits.

The nature of this fraud makes it difficult to detect and business owners must be vigilant in ensuring strong internal controls are in place. Consideration should be given to segregation of duties, ensuring the person receiving cash is separate to the person responsible for entering the receipt on the system. Daily cash reconciliations should be carried out by more than one member of staff. All balance sheet control accounts should be reconciled regularly by suitably qualified staff. In addition, do not overlook personal indicators, such as alterations in behaviour, a reluctance to take time off work, and sudden changes in lifestyle. These should all be viewed sceptically.

If you would like to discuss fraud risks with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Motor team.

This article originally appeared on the blog of our member firm, Moore & Smalley.