Dealership Fraud Prevention

Transcription

1 Dealership Fraud Prevention Skip the Scare Tactics; Stick to the Basics

2 About Axiom Advisors Axiom Advisors was formed in the spirit of providing a fresh, new alternative to meet the specialized needs of retail automotive dealers. What makes Axiom Advisors different? - Over 100 years of hands-on retail automotive industry experience working directly in dealerships, - Professional accounting experience, - Our advisors are car guys who speak the language of the industry and truly understand the complexities of the automotive retail business. Axiom s Core Expertise is in: - Enterprise Management - Mergers and Acquisitions - Litigation Support

3 About VVH VVH CPAs and Associates is a full service public accounting firm providing exceptional assurance and tax services. What makes VVH different? - VVH s partners are a unique combination of CPAs and automotive retail experts that have worked in dealerships, - 100% dedicated to the automotive retail industry, - Assurance and tax services are tailored to the industry and designed to provide both financial and operational insights. VVH s Core Expertise is in: - Assurance audits, reviews, compilations - Tax preparation, planning, consulting - Financial Statement Preparation

4 About Marilou Vroman Marilou has the unique and highly specialized combination of 25 years of hands-on retail automotive, Fortune 500, and public accounting experience as a CPA and CFE. As principal for Axiom Advisors, Marilou provides her clients specialized services including interim CFO and Controller services, mergers & acquisitions services including due diligence and offering packages, internal controls evaluation and implementation, business plans, manufacturer applications, internal audits, fraud investigation and deterrence, and forensic accounting. Prior to forming Axiom Advisors, Marilou was Dealerships Consultancy Manager with the public accounting firm Morrison, Brown, Argiz & Farra, LLC ("MBAF"), Marilou provided specialized services to dealers including operational analysis, forensic accounting, fraud investigation, litigation support, DMS consulting, buy/sell and due diligence services. Prior to joining MBAF, Marilou served as the Chief Financial Officer and Controller of a multi-franchise high-line dealership group for over 8 years. In this position, she was responsible for overseeing the operations of multiple accounting offices, implemented and maintained strong internal controls, conducted internal audits, and managed several dealership buy/sells from the due diligence phase to closing. Marilou also gained valuable experience in overseeing dealership expansion projects, forecasting, budgeting, and preparing manufacturer applications. Marilou s experience as District Financial Supervisor for multiple AutoNation dealerships in Texas, Florida and the Midwest provided valuable publicly held dealership operations skills as well as corporate accounting and financial consolidation experience. Marilou is driven by a strong work ethic, passion for the automotive industry, and a commitment to client success.

5 About Mercedes Hendricks Mercedes Hendricks is a CPA with a passion for serving the needs of the automotive industry. With thirteen years of public accounting experience, Mercedes uses her technical, analytical and project management skills to bring people together in a team environment with the ultimate goal of providing a first class experience for her clients. Mercedes is a graduate of the University of Massachusetts Dartmouth with a Bachelor of Science in Accounting. For 13 years following her graduation, she worked her way up to a senior manager in public accounting, with the last nine years specializing in the automotive retail dealer industry with Crowe Horwath, LLP (a top-ten national public accounting firm). Mercedes experience at Crowe consisted of assurance and consulting projects with over 100 retail dealerships across the country, exposing her to the industry language, systems, regulatory environment and general operations. In the summer of 2015, Mercedes met with Phil Villegas and Marilou Vroman (the founders of Axiom Advisors) and instantly connected with their vision to bring exceptional services to automotive retail dealers nationwide. With Mercedes passion for the automotive industry and extensive public accounting experience, partnering up with Phil and Marilou to create VVH CPAs and Associates was a natural fit. As the Managing Partner at VVH, Mercedes has worked with Phil and Marilou to re-engineer the audit process to change the way traditional assurance services are delivered to our clients by bringing focus, integration, innovation and passion.

6 Today s Objectives Dealership Fraud Prevention Why Dealerships are Fraud-Prone Skip the Scare Tactics; Stick to the Basics The Controller s Viewpoint The External CPA s Viewpoint Innovative Techniques to Improve Effectiveness of Internal Reviews Emerging Issue Be Prepared!

7 Why Dealerships are Fraud-Prone Why Do Employees Commit Fraud: External financial pressure Opportunity presents itself Rationalize behavior

8 Why Dealerships are Fraud-Prone What Can You Control? Reduce the opportunity through the control environment

9 Why Dealerships are Fraud-Prone Dealerships are a ripe environment for Fraud: High Volume Business High Cash Flow Multi business-unit convergence environment Isolated / Insular operating environments Poorly trained / equipped personnel Internal control system limitations

10 Why Dealerships are Fraud-Prone Dealerships are a ripe environment for Fraud (continued): Outsiders have limited to no internal knowledge of operations High fraternization level of employees Front-end driven mentality A monthly life cycle Cuts to administrative staffing is truly costly

11 Why Dealerships are Fraud-Prone Tone at the Top: Owner / Partner / GM Behavior Management Culture

12 Skip the Scare Tactics; Stick to the Basics Don t give in to the scare tactics you hear Vendors using fear to influence the public s reaction Stick to the basics Good internal controls are still the best defense for fraud Fraud risk identification Designing and enforcing controls to mitigate fraud risk

13 Skip the Scare Tactics; Stick to the Basics The Controller s Viewpoint: The Controller s Role: - Accuracy of Financial Statement / Reporting - Staffing and Training of Personnel - Internal Controls of Dealership - Management Interaction - Isolation of Store - Environment Fostered Thinking beyond monthly reporting

14 Skip the Scare Tactics; Stick to the Basics The Controller s Viewpoint: Understanding control environment and its limitations or weaknesses: - Qualifications of staff - Lack of staff, segregation of duties - Organizational chart who does the Controller report to? - Management bonuses/commissions dependent on operating results - Physical safeguards of assets

15 Skip the Scare Tactics; Stick to the Basics The Controller s Viewpoint: Implementing key preventative controls: - User access (who has the opportunity?) - Journal entries vs. adjustments to journals - Cash - Payroll - Receivables and write-off s - Inventory - Fixed operations

16 Skip the Scare Tactics; Stick to the Basics The External CPA s Viewpoint: Overall understanding of control environment - Has the dealership considered fraud risk factors and designed their own controls to mitigate those risks? Processes vs. controls Evaluation of personnel responsible for controls

17 Skip the Scare Tactics; Stick to the Basics The External CPA s Viewpoint: Identifying key preventative controls: - Entity level controls - Controls around the IT infrastructure and usage - Account level controls Testing of controls are they working?

18 Skip the Scare Tactics; Stick to the Basics The External CPA s Viewpoint: Evaluating results - What is the audit risk? Correlation between strength/effectiveness of controls and the extent of audit procedures - A strong internal control environment reduces overall audit risk. - In order to prove you have a strong internal control environment, there have to be controls in place that can be tested! - As audit risk decreases, so does the extent of the audit procedures.

19 Innovative Techniques to Improve Effectiveness of Internal Reviews Preventative Controls are Key, but Strong Detective Controls are good too! If prevention fails, ability to detect fraud sooner rather than later should reduce the overall impact of the fraud. Fraud detection techniques for dealerships: - Review of bank statements and reconciliations - Review of cancelled checks - Balance sheet account reconciliations and aging tests - Expense trend analysis - Review of month-end / year-end schedules

20 Innovative Techniques to Improve Effectiveness of Internal Reviews Preventative Controls are Key, but Strong Detective Controls are good too! Fraud detection techniques for dealerships (continued): - Open RO and parts invoice checks - Parts bin checks - Vehicle physical inventory - Petty cash and cashier checks - Review journal entries

21 Innovative Techniques to Improve Effectiveness of Internal Reviews Dealership transactions have an inherent behavioral pattern Each General Ledger account has a predisposed threshold of normal activity based on amounts, sources, time, and users. Deviations from these patterns become easier to identify when analyzed over an extended period of time.

22 Innovative Techniques to Improve Effectiveness of Internal Reviews Start by extracting data from the respective DMS Reynolds and Reynolds CDK - Query Builder (7601) - Ignite reports - Report Generator (RPK) - Drive Enhanced (RPG)

23 Innovative Techniques to Improve Effectiveness of Internal Reviews Make data manageable Convert data to a workable format such as: Excel, Access or another database You may need to use data mining software such as Monarch or Idea to convert the data

24 Innovative Techniques to Improve Effectiveness of Internal Reviews Looking beyond the General Ledger Activity outside the GL residing in other DMS databases can be very revealing regarding a dealership operation. - Parts Pad - Service History - F&I History - Payroll Data - VMS

25 Innovative Techniques to Improve Effectiveness of Internal Reviews Look for the outliers let the data speak for itself

26 Innovative Techniques to Improve Effectiveness of Internal Reviews Reverse engineer internal controls By testing operational anomalies you are able to evaluate the internal control systems of the dealership. - See how employees and management react when transactions don t go as expected. - Exposed areas of weakness can be further extrapolated for testing.

27 Emerging Issue Be Prepared! Direct Deal Posting From F&I? What this means for the accounting office Change in control environment to be considered by external CPA s

28 Questions?

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