Occupational Fraud in an Auto Dealership: A Costly Oversight

Auto dealerships handle millions of dollars in vehicle sales, financing, warranties, and customer payments each year, making them vulnerable to fraud and employee theft. While outside scams are common, some of the largest dealership losses come from trusted employees who manipulate accounting systems, create fake invoices, or steal customer funds.

Industry experts note that weak internal controls, rising inflation/cost of living, and lack of fraud training can create opportunities for fraud inside dealerships.

Employees at dealerships have been caught engaging in:

• Embezzling cash payments
• Creating fake refund checks
• Manipulating loan paperwork
• Writing unauthorized company checks
• Using shell companies to submit fake invoices
• Diverting customer funds to personal accounts

These are some real-world examples:

• A former dealership employee in Toms River, New Jersey, was sentenced after stealing more than $1.3 million from a dealership through fake marketing invoices. Prosecutors said he created shell companies and billed the dealership for advertising services that were never performed, then paid the fake invoices using corporate funds.
• In Miami, a former accounting clerk at a luxury dealership was accused of issuing hundreds of fraudulent refund checks to her husband and son. Investigators said the scheme lasted for years and resulted in losses exceeding $1 million. Authorities alleged she altered accounting records to hide the theft.
• A longtime office manager at Burlington Subaru and Hyundai in Vermont admitted to diverting customer cash payments and writing unauthorized company checks to herself. Federal investigators stated the fraud continued for more than a decade and caused approximately $191,000 in losses.
• According to the IRS, an employee at several luxury car dealerships in New Jersey embezzled more than $1.6 million between 2015 and 2021. The employee later pleaded guilty to federal tax fraud after failing to report the stolen income on tax returns.

The most important thing to recognize is that employee fraud continues to happen and fraud will continue to increase as wages are unable to keep up with inflation. As individuals get deeper into debt, the probability of employee fraud will continue to rise.

What can dealerships do to reduce their internal fraud risk:

• Separating accounting duties among employees
• Conducting regular audits and surprise audits
• Monitoring refund and check activity
• Using secure financial software controls
• Performing background checks on employees
• Encouraging anonymous reporting of suspicious activity

As dealerships become more dependent on digital systems and electronic transactions, internal fraud remains a serious financial and reputational threat to the automotive retail industry. For assistance or further discussion on implementing fraud prevention techniques, dealers and dealership managers can contact HHM’s team of dealership focused professionals, CPAs, and Certified Fraud Examiners. Contact Joel Freund or Paula Mashburn to learn more and see how HHM CPAs can assist you in the fraud fight. Call 423.756.7771.

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