Avoiding Fraud

WARNING

Have people used the pandemic to carry out fraud at your dealership?

James Batchelor finds out about economic crime in showrooms.

No-one would disagree that Covid-19 is having a hugely damaging effect on the automotive industry.

But along with showroom closures, job losses and reduced cashflow, dealers also have to be wary of fraud.

That’s the advice from chartered accountants and business advisers UHY Hacker Young, who have warned of a fresh wave of fraud and other economic crime arising from coronavirus – and the effects are so damaging they may last for years.

The automotive industry has one of the highest percentage of frauds committed by insiders, says the firm.

In April, dealer group Lookers announced that it was expanding its internal fraud investigations to its entire business.

Initial findings from one of its operating divisions resulted in an expected one-off charge of more than £4m in its 2019 financial results.

By the end of June, the investigation had revealed a £19m issue in the accounts.

UHY Hacker Young’s David Kendrick, who is head of corporate finance and chairman of UHY’s national automotive group, said: ‘This just illustrates how allegations of fraud, previously undetected, emerge from the shadows and can result in an eye-watering black hole.’

Highlighting the need to remain alert to current risks, Kendrick said: ‘You may wonder why, at your pre-year-end audit planning meeting, your auditor queries whether there have been any instances of fraud during the year.

‘It might seem a completely irrelevant question and one that has nothing to do with the audit, but ask yourself this: are your systems and controls robust enough to deter fraud?

‘Would you know if your employees were pulling a fast one, or your supplier was really who they said they were?’ Car dealer new strip ad Revised 4/4/18 12:01 Page 1

GUIDANCE

Types of fraud to be aware of:

• Profit manipulation • Cash and credit card sales • Cooking the books • Backhanders • Supplier fraud • Cybercrime

As a minimum, UHY Hacker Young recommends a dealer:

• Reviews the strength of financial controls, internal processes and guidelines • Reminds employees of existing company policies about conduct and the acceptable use of company systems, devices and information • Puts measures in place to identify unusual behaviour, eg, enhanced monitoring or retrospective reviews of high-risk transactions • Warns staff that cyber criminals may exploit the current turmoil to increase phishing attacks • Reviews cyber liability insurance and understands how it will respond in potentially harmful situations • Discusses automotive retail fraud risks with their auditor during the audit planning meeting to ensure key risks are identified and responded to

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