BOGUS PARTS NIGHTMARE

Wake Up Before It's Too Late; Take Precautions to Prevent Theft Schemes

Did you hear the story about the parts house sales person who figured out how to defraud the auto dealer? It's a tale you should know because if it had not been for a dealership accounting posting error the sales person probably would have gotten away with the crime.

In this story the sales person, fictionally named John Salesman, had a buddy at the dealership, the parts manager fictionally named Mary Partsman. Together they devised a scheme in which Partsman prepared dummy purchase orders and Salesman sent bogus invoices. No goods were ever shipped and Salesman and Partsman split their illegally obtained profits after the dealer's unknowing accounts payable clerk cut checks and sent them to Salesman.

How It Was Covered Up

Since Partsman was the parts manager, she knew that the annual physical inventory was scheduled and that their little scheme would soon be discovered. What did they do? Quite simply Salesman shipped some parts to the dealership to cover the theft (these parts were to be shipped back immediately after the inventory).

Salesman's and Partsman's names are fictional, but their crimes were not. In this true story Salesman and Partsman pocketed about $150,000 and were on track to steal a lot more. Another person's honest mistake is all that stopped them.

They were caught because the dealer's accounting firm raised a question concerning what turned out to be a $20,000 accounting posting error. Partsman confessed when the accounting firm questioned the difference between the physical inventory and the general ledger figure that was on the dealer's books.

while these two criminals were caught, there are more

John Salesmans and Mary Partsmans planning and executing what they think is the perfect crime. Sometimes their schemes are even more elaborate.

What's a dealer to do? Improve your internal controls, including the following ways:

• A parts inventory needs to be taken no less than annually.


• Between inventories, have someone other than parts personnel conduct spot checks of parts bins.


• Have a parts inventory performed by an outside company.


• Consider having the inventory performed unannounced.


• Enforce and establish a mandatory vacation policy, making it difficult for dealership employees participating in fraud to cover their tracks.


• Watch for unusual purchasing patterns.


• Become wary if the inventory level on the books grows unexpectedly.


• Each month have your office reconcile the parts pad to the general ledger balance.