Knowledge Center

  • RSS Feed
  • Contact
  • Print

KNOWLEDGE CENTER >

Employee Fraud: Many Scams Start In the Finance Department

December 01, 2009

Employee fraud, sadly, can strike any kind of business, including auto dealerships, and it costs consumers and business owners millions of dollars each year.

Employees take wrong turns, either for their own profit or to win approval by bumping up the dealership's bottom line. In auto dealerships, fraudulent activity often revolves around the financing department and its relationship with customers. Sometimes a salesperson is part of the scam.

But you can protect against fraud, and, in the process, protect your dealership and industry's reputation. But you've got to know how to recognize the beast before you can hunt it. Here are some common employee scams involving the financing phase of sales.

Presenting a Bogus Credit Score
In this fraud, a financing department employee lies to the customer about his or her credit score, saying it's lower than it really is. The employee then charges the customer a higher interest rate, increasing the dealership's income from the sale.

Crooked employees try this on customers who won't be too surprised to hear they're having financing problems. Most consumers with strong credit ratings would know they were being duped.

One way to prevent this scam, and most financing-related scams, is for a finance manager to review all customer agreements. If a customer's credit score doesn't mesh with the interest rate being charged, foul play could be to blame.

Just be sure to rotate reviewing duties among several finance managers. If you don't have more than one, randomly review customer agreements yourself.

Faking Financing Approval
This scam involves telling the customer that he or she has been approved for financing, delivering the vehicle and letting the customer drive it for a few weeks. But then the other shoe drops: a financing department employee calls back to say that the loan fell through and, to keep the vehicle, the customer must pay a premium and a higher monthly payment.

Again, crooked employees usually practice this rip-off on customers with poor credit, whom they assume feel shaky about their creditworthiness. The employee knows the real payment amount and the interest rate offered by the financing institution before delivering the car. But he or she assumes that, after driving the vehicle for a time, the customer will develop a certain comfort level and agree to pay more to keep it.

To catch employees doing this, watch your contract in transit schedule to see if any deals are taking too long to be funded. You can also send out customer satisfaction surveys and read any responses received carefully. If you notice several buyers, or even one, complaining that their monthly payment went up unexpectedly, investigate further.

Padding Totals
In this fraud, a finance department employee includes items in the vehicle price that the customer didn't agree to, such as destination fees, and, most frequently, warranty costs. The salesperson quotes a price that doesn't include the warranty fee, and then gives the customer the monthly payment amount that does include it - without getting the customer's consent.

If the customer questions the warranty, the salesperson may say it's required in order to lock in a certain interest rate. This is false: the interest rate depends only on the customer's credit history.

Once again, regular, unannounced reviews of customer agreements can turn up scams such as this one. In addition, be sure to inform finance department employees of the consequences of fraudulent behavior. Clearly state that you have a no-tolerance policy toward wrongdoings, and remind them that you'll occasionally, and without warning, review their work for accuracy.

Staying Vigilant
To prevent or at least curtail fraud, dealers must stay vigilant. As your employees make sales and your dealership makes money, don't assume all is well; frequently check up on what's really going on. Make sure you're doing enough to protect your dealership's image and standing in the community, which is, after all, your most precious asset.

How Much is Fraud Costing Your Dealership?
Crooked employees and dealers who commit fraud may be making a few extra dollars per vehicle, but they're losing a lot more.

After all, most dealership revenue comes from loyal repeat customers. Defrauding customers costs a dealership potential repeat business, such as additional car sales and service, not to mention the threat of legal action and criminal prosecution. Plus, you could be losing out on new customers. Before buying cars, many people look at a dealership's reviews by past customers. If your employees are scamming customers, the public may know about it before you do.

 

Advisors | Auditors | Consultants | CPAs - Blum Shapiro is one of the premier public accounting firms in the northeast and a Top 100 CPA Firm in the U.S. Our professionals serve businesses, individuals and organizations in Boston (MA), Hartford (CT), Cranston (RI), Shelton (CT) ,Quincy (MA) and Newton (MA) with audit, tax and business consulting services. Our firm has developed practice areas in automotive, construction, education, government, healthcare, hospitality, manufacturing, nonprofit organizations and professional service firms. New Haven CT, Fairfield CT, Norwalk CT, Waterbury CT.