It’s ‘impossible’ to catch fraud but you can reduce risk

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You’re making a mistake if you’re relying on your accountant to catch fraud in your shop.

Every accounting professional will tell you that it’s not their job to catch fraud, embezzlement or mismanagement, explained Hunt Demarest, a senior accountant who specializes in working with automotive repair shops with Paar, Melis & Associates.

“Because if done correctly, it’s virtually impossible” to catch fraudulent activity, he said during the session Protecting Your Company at the recent Midwest Auto Care Alliance Vision Hi-Tech Training and Expo. “If someone’s stealing $300 from you every single week and they weren’t stupid about it, they could do that forever. And you would never ever, ever be able to catch it.”

But if they do get caught, oftentimes it’s because they make a mistake. They get greedy. And the shop has systems in place to not let it happen in the first place or catch it once it’s happening.

“The big thing here is to implement and follow processes and procedures,” Demarest recommended.

Part of that includes not letting your financial statements look like a dog’s breakfast. “We want to get the variables out of the financial statement. That’s my sole objective,” Demarest said.

You don’t want deposits going in at random times, costs for your race car side gig being included and things of that nature. It’s these unpredictable items that can cause confusion when figuring things out.

“There are so many variables that you look at it and if something looks weird, you’re never going to have a concrete answer why that’s actually happening,” Demarest said.

Another key is the separation of duties. The person receiving the money shouldn’t be the same person depositing the money and they shouldn’t be reconciling the money and that shouldn’t be the same person writing the cheques. And there shouldn’t be multiple people doing the same job. Each should be done consistently and by the same person — so Joe deposits money every Thursday afternoon, for example.

“The only person that should have that much concentration [of power] is you guys, you as shop owners,” Demarest told attendees. “Hey, if you want to steal from yourself, that’s your prerogative, you can do it. But if you give employees that much power on it, then you can’t be super mad when they end up using that for illegal means.”