Insert Presentation Title Here

Rehmann Live! Putting the Brakes on Fraud in Dealerships

Presented by

William Kowalski, J.D.

© 2013 Rehmann

Moderator: Jim Goerlich, Jr., CPA, CGMA

Principal

• Rehmann Dealership Services

Group Leader

• Rehmann Accounting, Consulting

and Tax (ACT) department

advisor

• More than 30 years of experience

in accounting, taxation and

business planning and consulting

Jim.Goerlich@rehmann.com 248.614.6401

© 2013 Rehmann

Who is Rehmann? • A Michigan corporation founded in 1941

• Offices in Michigan, Ohio, Indiana and Florida

• Nearly 800 team members

• One of the top 35 accounting and consulting firms in the U.S.

• A member of Nexia International, a network of financial

services professionals in 100 countries who can provide top

level support for Rehmann clients worldwide

© 2013 Rehmann

Your Single Source

© 2013 Rehmann

Key Dealership Services • Financial Reporting

• Audits

• Corporate & Individual Tax Preparation

• Compilations & Reviews

• Internal Control Assessments & Consulting

• Operational Consulting

• Accounting Assistance

• Management Training

• Succession / Estate Planning

• Tax Planning

• Franchising

© 2013 Rehmann

Fraud Risk Wisdom…

• Typical organizations lose 5% of annual revenue to

fraud

• 50% – or one half – of victim organizations do not

recover the losses

© 2013 Rehmann

Presenter: William Kowalski, J.D.

Principal

• Director of Operations for Rehmann

Corporate Investigative Services (RCIS)

• Special Agent with the FBI for 25 years

• Assistant Special Agent-in-Charge of the FBI

in Detroit

– Oversight responsibility for counter-

terrorism operations throughout Michigan

• Served in FBI offices in Detroit, Memphis,

New York City, Flint, and Washington, D.C

Bill.Kowalski@rehmann.com 248.458.7870

© 2013 Rehmann

Corporate Investigative Services

• Background Investigations

• Due Diligence

• Fraud and Embezzlement Investigations

• Forensic Accounting

• Surveillance

• Asset Searches

• Digital Forensics

• Fraud Risk Assessments

© 2013 Rehmann

Why Take Steps to Prevent Dealership Fraud • At least 20% of fraud cases involve sums of $1

million or more

• 30% of all fraud affects small organizations of 100 or

fewer employees

• Insider theft increased by 80% over 2012

© 2013 Rehmann

Fraud Risk Threats

• Our first concern is the safety and security of our

Clients. YOU.

© 2013 Rehmann

Are You a Target for Fraud?

Bill Kowalski Motors • 1500 W. Big Beaver Rd., Troy,

MI

• 248.267.8445

• Bill.Kowalski@rehmann.com

• Bill Kowalski on LinkedIn

• Bill Kowalski on Facebook

• Bill Kowalski on Twitter

Motor City Parts

• 1200 W. Big Beaver Rd.,

Troy, MI

• 248.267.8445

• Info@mcparts.org

• www.mcparts.com

• No name

• No face

• Less information

• Less personal

© 2013 Rehmann

Are You a Target for Fraud?

• You own a successful business

• Your name is associated with the business

• Your face is used in advertising

• Your family shares your name

• You share family photos on Facebook

• You drive from work to home and back

• Your home is easy to find

© 2013 Rehmann

You and Your Family Are Targets

High Net Worth individuals

High profile exposure

Geography/Travel

Multiple homes

Surrounded by people

Easy to target

© 2013 Rehmann

High Net Worth Security

• At home:

– Security systems

– Social media

– Emergency plans

– Travel security

– Share security with family

– Practice security responses

And…

© 2013 Rehmann

Know the People Around You • Domestic employment: the “gray market”

• Conduct backgrounds on domestic employees

– Before you hire

– After you hire

• Anyone with access to family

• Grounds keepers

• Drivers

• Maintenance

• Cooks

• “Managers”

• Nannies

© 2013 Rehmann

A Full Background Investigation • We have found:

– Chauffeur with alcohol and drug-related traffic violations

– Foreign national with drug cartel association

– Applicant with over 100 drug, domestic battery, check

fraud violations

– Applicant on probation for drug possession charges when

applied for domestic position

– Applicant with outstanding arrest warrant for assault with a

deadly weapon

© 2013 Rehmann

Household Security

Home Security

Assessment Home Security

Plan

Background

Investigations Emergency

Plan & Practice

© 2013 Rehmann

Other Domestic Security Tips • Don’t post vacation information to social media

– It advertises that you’re not home

• Don’t let household staff post your vacation plans – It advertises that you’re not home

• Don’t share activity plans on social media – It advertises where you are when you’re not at home

• Practice safe internet

• Don’t post photos of your family on social media

© 2013 Rehmann

Fraud Risk Threats

• Your business

© 2013 Rehmann

Small Organizations & Fraud

© 2013 Rehmann

Fewer checks and balances

One person performing all

fiduciary duties

Less effective internal controls

Inability to have separation of duties

Opportunity

External Threats

• Fraudulent customer identification (Drivers License)

• Fraudulent customer credit card

• Fraudulent customer business documents

© 2013 Rehmann

Fraudulent Document Risks • Test drive drive-away risk

• Test drive insurance risk

• Loan application falsification

• Loan loss risk

• Lease loss risk

• Numerous regulatory violations

© 2013 Rehmann

Identification Due Diligence - Some Risk • Ideally for test drive or loan application

– Require 2-3 forms of identification

– Require last 4 of SSN

– Carefully review and validate

• Call the credit card company to validate name with address

on driver’s license

– If they don’t add up, reject

– Temporary ID should be filed with photos of individual,

current car, license plate, license, last 4 of SSN

© 2013 Rehmann

Identification Due Diligence - High Risk • Corporate lease/large retail purchase

– Conduct extensive due diligence

• Validate corporate identity

• Validate individual identity

• Determine criminal/bankruptcy history

• Require 2-3 forms of Identification

• SSN

• This is a standard Rehmann CIS service

© 2013 Rehmann

Other External Threats Hacking/Data theft

Vehicle theft

Parts theft

Lot security

Document security

Environmental terrorists

Malicious destruction

© 2013 Rehmann

Anyone Can Be A Target

• In the last few months:

– Yahoo (2.5 million users)

– Snapchat (4.6 million accounts)

– Target (100 million credit/debit cards)

– Kroll Lexis Nexis (terabytes of data)

– World of Warcraft (unknown)

– Nieman Marcus

• Your business could be next

© 2013 Rehmann

Cyber Crime Vocabulary

© 2013 Rehmann

Spyware Malware

Phishing/

Pharming

Skimming

Trojans/

Viruses Pharming

Keylogging

Ransomware

Social

Engineering

Dumpster

Diving

Mobile Data Abounds

• There will be 7.3 billion mobile devices by 2014

– and 7 billion people (Digital Trends)

• 63% of mobile device users use their phone to go

online. (Pew)

© 2013 Rehmann

Mobile Malware Follows • Kaspersky Lab detected 14,923 new smartphone

malware programs between April and June 2012 (Kaspersky Labs)

• Kaspersky Lab detects 200,000 new malicious programs every day (Kaspersky Labs)

• Cellphone viruses install SMS spyware which sends your identifying information to cyber criminals

• Protect your mobile devices!

© 2013 Rehmann

Data Breach Data • 57,868,922 records were breached in 2013

– Risking personal information of 57 million consumers

• 30% increase over 2012

• 25.8% were hacked

• 47% of the breaches exposed Social Security numbers

Are you protecting your customers’ information?

© 2013 Rehmann

Data Breach Costs

• It costs a company, on average, $188 per record

breached to repair the damage

• Small and medium-sized US organizations lose

$100,000-$200,000 per day through Malware that

leverages weaknesses in both the wire transfer and

ACH process

ARE you protecting your customers’ information?

© 2013 Rehmann

Close the Loopholes! • Enforce digital security policies

• Educate employees

• Update security software

• Keep all systems up-to-date

• Backup & encrypt data

• Secure wireless devices

• Purchase cyber insurance

• Secure paper documents and shred everything!

© 2013 Rehmann

If You Didn’t Buy A Ticket, You Didn’t Win the Lottery!

• Don’t click on links embedded in emails

• Don’t click on pop-ups

• If it’s too good to be true - it probably is

• Do not respond to emails that ask you for personal information

– Call the company before responding, but don’t use the phone number in the email

– Log into the company’s official website, not the link in the email

© 2013 Rehmann

Be Smart!

Other External Threats

• Site Security

– Vehicle theft

– Vehicle damage

– Parts theft

– Lot security

– Malicious destruction

© 2013 Rehmann

Site Security Weaknesses

• Rehmann CIS site security assessments

– Access control and maintenance

– Gates/doors/fencing

– Camera coverage

– Locks/key systems

– Parking lot/lighting

– Polices, personnel, procedures and preparedness

– Emergency response / alarm

– Social engineering test

© 2013 Rehmann

Internal Threats • Cash transactions

• Electronic record systems

• Electronic Funds Transfer

• Access to dealership checks

• Dealership credit cards

• Expenses

• Access to customer financial information

Employee error/negligence increased by 72.7% over 2012

© 2013 Rehmann

• Where did the parts go? Invoices/Parts

don’t add up

Parts database

tampering

Invoice

tampering

Business within

a business

Rehmann Case Study

© 2013 Rehmann

How We Find Fraud

• Forensic Accounting Review

– Ensure discretion

– Gather paper/electronic records/books

– Examine for fraud

– Document fraud

– Recommend Internal Controls improvements

© 2013 Rehmann

Key Internal Control Loopholes

Separation

of duties

Cross training

of duties

Vacation

policy

Lifestyle

changes

Management

oversight

© 2013 Rehmann

Predictable

review

Behavioral Red Flags

© 2013 Rehmann

Living Beyond

Means - 36%

Financial Difficulties -

27%

Excessive Control

Issues - 18%

Prevention - Background Checks

• Different levels of background checks for

– Sales

– Financial personnel

– Shop

– Executive

• Check current employees

• Periodic re-check

© 2013 Rehmann

Prevention - Digital Security • Employee error and system problems account for 64% of

data breaches (2012 Ponemon and Symantec)

• Establish/enforce data-related policies, procedures

• Keep systems updated and patched

• Required by regulation – “Red Flags” Rule

– Part 681.2 of Title 16 of the CFR

• Required by insurance

© 2013 Rehmann

Prevention - Former Employees • Delete access

• Change passwords

• Take company-owned digital devices

• Deactivate keys

• Image digital devices (CIS)

• Non-compete

• Monitor social media

© 2013 Rehmann

Reputation Protection

• What are employees tweeting or posting?

• What effect on your reputation?

• Monitor social media activity

• Company policy regarding what employees can and

cannot post on social media

© 2013 Rehmann

2 3 4

Effective

Internal

Controls

Internal

Controls

Assessments

Effective

Site

Security

How to Prevent Fraud

© 2013 Rehmann

1

Trust and

Hope

RCIS Investigations

• Fraud and Embezzlement

• Forensic Audit

• Insurance Fraud: FMLA, Workers’ Compensation

• Healthcare Fraud

• Digital forensics

© 2013 Rehmann

Questions?

© 2013 Rehmann

Rehmann CIS Team William F. Edwards Principal & Senior Investigator

• Accounting Degree: St. Joseph’s College

• Coopers & Lybrand audit staff

• FBI Agent (29 years)

• Comerica Bank (Investigations Manager)

• Rehmann Corporate Investigative Services

Michelle E. Houbeck Director of Intelligence

• Ten years experience conducting complex background investigations.

• Located millions of dollars in hidden assets.

• Extensive knowledge of data resources, and broad network of domestic and international sources.

© 2013 Rehmann

Thank you!

William Kowalski, J.D.

Phone: 248.458.7870

Email: bill.kowalski@rehmann.com

Jim Goerlich, Jr, CPA, CGMA

Phone: 248.614.6401

Email: Jim.Goerlich@rehmann.com

© 2013 Rehmann