Pub. 6 2017-2018 Issue 1

Summer 2017 25 Sam Celly, BChE MChE JD CSP Celly Services, Inc. Member CNCDA, OCADA, NCDA, SMCDA, ACS & AIHA 444 West Ocean Blvd., Suite 1402 Long Beach, CA 90802-4517 Phone: 562.704.4000 Direct: 562.716.6100 Email: sam@cellyservices.com SERVING THE AUTOMOTIVE INDUSTRY FOR OVER 30 YEARS • Illness & Injury Prevention • Safety Inspection & Training • Spill Prevention, Control, Countermeasures • Newsletters on Emerging EPA/ OSHA Issues • Hazardous Waste Management • Haz Mat Release Response • Respiratory Protection • Hazardous Waste Cost Recovery • Representation in OSHA Enforcement Cases • Phase 1 Environmental Assessment • Regulatory Permits & Reporting What Can I Do? Fortunately, there are various immediate action items you can take to strengthen your dealership’s controls and deter fraud. 1. Segregation of Duties. Avoid the blurring of roles. Specifically, do not grant employees who record and reconcile transactions access to reconciled assets. Reconciliation should be prepared by someone who is not involved in banking duties and does not have access to accounting records. There are steps you can take without adding additional resources, such as owner involvement. The best way to prevent and detect fraud is for the owner to be involved in the financial statement process. It should be noted, however, that segregation of duties doesn’t work well with close friends, so consider the effect of relationships here. 2. Reconciliation Process. It’s imperative to have a recurring, formal reconciliation process of all the key accounts with a review. Informing employees that accounts will be reviewed and reconciled (and that differences will be investigated) can be a preventative measure. 3. Checks and Balances. Mark in your calendar a few random days throughout the year to perform inventory counts. Don’t let the individual performing the inventory have an inventory listing or reconcile back to the accounting records. 4. Electronic Transfer Review. As wire transfers leave no paper trail, they are a favoredmethod of fraud. As such, review these transactions regularly and make sure the payments are supported by some form of documentation. 5. Journal Entry Review. Aim to review general journal entries each month. Be on the lookout for large and unusual amounts, such as entries to parts inventory, cash entries, anything that affects profit and loss accounts. It’s always good practice to limit the manual journal entries that post to the general journal. 6. Review Canceled Checks. Review the front and back of the checks and let employees know you are doing this. 7. Testing and Check Ups on Controls. This is highly effective when performed unannounced. 8. Data Analytics. Consider performing analytics on disbursement files and vendor files. 9. Fraud Hotline. This can be a cost-efficient control that allows employees to report incidents in a safe environment. 10. Tone from the Top. This is a phrase that indicates management’s leadership and commitment towards honesty and integrity. Furthermore, it is among the most important components of a control environment. It has a trickle-down effect, meaning most employees will uphold the same values as those demonstrated by leadership. Beyond leading by example, make sure you clearly communicate your ethics and values throughout all areas of the dealership. Communicate them informally through daily interactions and formally by way of written codes of conduct, staff meetings, memos, etc. You will also want to create a path for employees who witness fraud to be able to confidentially and safely report the unethical behavior. Consider Objective Input While the above self-regulated action items come strongly rec- ommended, including an internal audit in your controls routine performed by an objective, experienced third party advisor can be extremely beneficial in analyzing your internal controls and accounting records. There are a variety of reviews and procedures an auditor can thoroughly perform to spot any anomalies and help you implement preventative measures against fraudulent acts, including, but not limited to: • Preparing surprise bank account reconciliations. • Periodically, physically hand out paychecks or paystubs for those on direct deposit. • Assessing part inventory activity. • Reviewing cancelled checks. • Performing physical inventories. While youmay need to rearrange your budget to accommodate an internal audit, the fee to implement a solid set of internal controls is far less than the financial loss and high remediation/response costs of fraud detection. [1] Association of Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abuse. DHG Dealerships has a team of dedicated professionals working exclusively with dealerships across the country. We servemore than 2,500 rooftops across all 50 states, representing dealership groups of all sizes, including six of the top 10 dealership groups in the country. In addition to providing traditional tax and assurance services, we help keep our clients ahead of relevant and emerging industry trends, including mergers and acquisitions; succession planning; facilities and factory matters; risk and regulatory; performance; and people and talent acquisition.