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Dealership fraud alert: Technology allows service employment to steal

By Forrest Flinn

1-15 Forrest Flinn blogLast June, I wrote an article about why employees steal and how to prevent such theft. (Read the article here.) It is something that most of us do not want to think about, but the truth is that it is happening more than you know or want to admit.

Yesterday I received a troublesome call from a client informing me that they have become a victim of employee theft in their service department. It turns out that an employee, who was recently terminated for other reasons, was taking credit card payments through Square for customer repair orders and then cancelling the repair order in their DMS. Square is a service that basically allows anyone with a smart phone to take credit card payments that are in turn linked directly to their personal bank accounts.

As of yesterday the total loss was roughly up to $6,000, and we are still digging deep, and we anticipate that the loss will be more. Currently this dealer is working with the police, and they will be prosecuting the ex-employee to the fullest extent of the law.

I am very proud of this dealer for doing so, since so many dealers in my experience aren't willing to do so for whatever shortsighted reasons. Some dealers are embarrassed that it happened. Some dealers turn their heads the other way and justify employee’s actions for some reason. If I caught an employee stealing from the dealership, I would have them handcuffed and arrested at work so that they could do the shameful “perp walk” through the dealership and be thrown into the back of a police car.

I personally believe that there is a special place in hell for any employee that steals, embezzles, defrauds, etc. from any dealer in the powersports community. I have worked in the industry for over 20 years, and most all dealers that I know would help a good employee out, if they were in financial straights. It's what we do as an industry. It is the kind of people we are. It is something that helps us keep good employees, and it is basic good human resource management.

I spent the entire day yesterday in their dealer management system (DMS) building reports to provide supporting data to help with the investigation. I felt the dealer's stress, disappointment and betrayal. I personally felt sickened by the event.

Could this type of embezzlement been prevented? The answer is yes.

It all came down to the system security and giving an employee the ability to cancel a repair order. Most dealer management systems allow you to lock up this function, so only a manager or owner can void a repair order. Also some dealer management systems allow you to report on cancelled repair orders to see what are the reasons behind such voids and when they are occurring and by whom.

In my article last year on employee theft and embezzlement I stated that for every internal control that you put in place to prevent fraudsters from stealing from you, they in turn will find another way. It is a continuing and ongoing process that your dealership should be going through.

Your best defense is auditing your dealership's system security on a regular basis. I strongly suggest you set up security passwords in your DMS based on the employee’s job description. If the system function does not match their job description make sure you lock them out of it. Make sure all of your accounting is locked up. Also, all system maintenance and setup functions should be locked down as well. Delete passwords that do not make sense. Delete employees that are no longer with you.

Every employee working in your dealership should have his or her own unique password. I have seen more “generic” passwords that multiple people use. For example, all parts counter employees use the same user ID as well as password for processing parts sales transactions. If you have this you are only asking for problems where employee accountability is concerned.

And please, PLEASE, make sure that only your system administrators have the ability to access the area where you setup security passwords. As stated in my previous article I have seen too many situations where employees were inadvertently allowed to access areas such as system security. This could completely undermine what you are trying to accomplish with setting up rock solid internal controls within your dealership’s automation.

Protecting dealership assets is the name of the game. There are so many ways to steal from a dealer, and believe me, I have seen many. And just when I think I have seen every way that an employee can steel, I am greatly humbled by yesterday’s news from my client.

Technology and personal communications are ever changing. We as an industry need to be up on the most current trends in technology and be prepared to address the possibility that these great advancements can possibly hurt our dealership operations.

Employee fraud and theft is a fact of life. We need to do everything that we can to protect the jobs that we have and an industry we love.

Forrest Flinn, MBA, PHR, SMS has been in the motorcycle industry for nearly 20 years and has been a true student and leader serving in various capacities. He previously worked as an implementation consultant for Lightspeed and as a general manager with P&L responsibility for a large metro multi-line dealership. Currently Forrest is the managing partner and chief visionary for a consulting firm that specializes in outsourced accounting, human resources, social media strategy, dealership operations consulting and Lightspeed/EVO training.

Contact: forrest@powersportsmc.com

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