Fixed ops departments battle theft, fraud

Jan. 1, 2020
The value of those parts is sometimes a temptation that unscrupulous employees can't resist, and although technology has made it more difficult for employees to steal from the dealership, theft still occurs.
Dealership parts and service departments hold hundreds of thousands of dollars worth of inventory at any given moment. The value of those parts is sometimes a temptation that unscrupulous employees can't resist, and although technology has made it more difficult for employees to steal from the dealership, theft still occurs.

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The type of theft and fraud that occur in the fixed-ops department can vary from employees brazenly taking parts of the shelf, to more elaborate schemes that involve processing false orders or returns and pocketing the cash. Employees may skim petty cash disbursements, steal fuel or use dealership credit cards to pay their own bills. Specific to the parts department, employees may steal parts and resell them, or destroy documents to cover up thefts from the daily deposit or theft of parts.

In September, a parts and service manager at Kitchener Nissan in Canada was convicted of scamming more than $165,000 from his dealership by submitting false warranty repair claims to Nissan Canada, as well as stealing inventory, voiding bills that had been paid by customers and using a debit machine to transfer money into his own accounts. An employee at a Springdale, Ark., Honda dealership, meanwhile, skimmed money from eBay parts sales to the tune of $25,000.

"It's not as prevalent as it was 10 or 15 years ago," says Dave Piecuch, vice president of Automotive Consultants Group. "Dealers have better hiring practices, and they're installing more surveillance equipment. There are more checks and balances in the parts department, too, like perpetual inventories and VIN checks. The discrepancies are noticed faster."

Still, it's impossible to completely eliminate the possibility of theft. "You can take the right steps to limit opportunities for theft and fraud," Piecuch says. "Having the right management controls in place can minimize it." Some suggested controls include:

Improve hiring practices. Perform background checks and use personality profiles to help screen potential employees.

Verify that parts charged were actually used in the repair. Make sure employees follow these procedures, and reconcile the repair orders and inventory regularly.

Restrict parts department access: Limit inventory access, particularly after hours. Make sure all parts are logged as they are removed from inventory. Only allow authorized parts personnel into the inventory area during business hours. Make employees sign out each part, and enforce that policy.

"A lot of clutter and disorganization is also a bad sign," Piecuch says. "The space needs to be clean and organized."

Make sure your computer inventory is accurate. Service techs may complain that they have to physically verify part availability, but you'll never get your electronic inventory squared away if just anyone can walk in and take a part off the shelf, whether they're stealing or not. If there are discrepancies between the physical inventory and what the dealer management system has recorded, address those issues immediately.

Install security cameras. Just the presence of a security system (even a "fake" camera) will make employees think twice about lifting parts. The cost of this surveillance has come down considerably, and they are much easier to install than they were in the past.

How do you respond when you uncover theft? Many dealerships will fire an employee without actually pressing criminal charges, often because it can be difficult to make an ironclad criminal case. Frequently, that's because the dealership isn't keeping reliable records of its inventory or its employee behavior. "You have to keep accurate records," Piecuch says. "You have to do that preliminary work. You keep track of when employees aren't following procedures. If you have the information, you can sometimes prevent things that might happen down the road.

"What often happens is that theft occurs because the dealer doesn't keep the documentation, does not have good security in the parts department, and the equipment is free to come and go without any kind of sign-out sheet,” he says. “It's like preventative maintenance for a car. You have to do the proper things up front."

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