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Strengthening Internal Controls to Prevent Fraud

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Fraud is often not detected until after the crime has been committed. According to the Association of Certified Fraud Examiners (ACFE), the average time to identify fraud is 18 months. Furthermore, roughly 58% of cases have no recovery whatsoever, which indicates many organizations fall victim to significant loss with slight hope of financial repossession. Business owners often accept the risk in lieu of pumping additional resources into staff or other control-related activities. However, it’s important to understand what you do have control over, along with some relatively simple, yet critical controls to implement.

Who Typically Commits the Crimes?

You might be surprised by the most common fraudster - the trusted employee. ACFE reports that 53% of employees committing fraud have been with the organization for more than five years. If fraud is occurring in your powersports dealership, it is likely that the perpetrator is a long-term employee with access to account numbers, passwords, financials, etc.

Internal fraud often happens when an employee finds himself/ herself in an ill-fated personal situation (i.e., divorce, medical expenses, financial difficulties, etc.). In fact, the “fraud triangle” - comprised of the three elements of rationalization, opportunity, and pressure – applies to most cases of employee/occupational fraud. If a dealership employee is in a personal bind, and either rationalization or opportunity presents itself, the gateway to committing fraud opens up. When considering the fraud triangle, the only controllable element is providing the opportunity for someone to commit fraud.

A good first step in prioritizing fraud prevention measures within your powersports dealership is grasping that trust is not a control.

A Good Starting Point

Start by tightening up your internal controls. Up-to-date financial information of your dealership is a primary element of a strong internal controls function and may help you detect fraud early so that you don’t fall within the 18-month statistic. Powersports dealerships often lack a sophisticated internal controls system due to budgetary priorities. However, the benefits often outweigh its cost, as expenses associated with fraud response measures (not to mention the dollars lost from the fraudulent act itself) are damaging.

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Author

Jeremy Jacobs, Senior Associate | DHG Dealerships
704.367.5926 | jeremy.jacobs@dhgllp.com



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