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Limit Your Vulnerability to Employee Theft

Are Your Employees Hiding Anything?

By Chuck Sujansky

Employers in every industry are increasingly becoming victimized by theft of goods and services from once-trusted employees. How widespread is the problem? Ninety-five percent of employers are believed to be victims of theft and 75 percent of employees who steal from employers do so repeatedly. The U.S. Chamber of Commerce estimates that theft by employees costs American companies $20 to $40 billion a year. To pay for it, every man and woman working in America today contributes more than $400 per year.

Dealerships not Immune to Employee Theft

These estimates don’t take into account losses from employee theft that may harder to measure. Acts of theft and fraud committed by employees can also rob a dealer of invaluable intangibles, such as lost time, damaged trust, ruined relationships and ruined reputations. While organizations of every size and in every industry may fall victim to employee theft, the damage can hit smaller employers the hardest. A report by the Association of Certified Fraud Examiners found that organizations with fewer than 100 employees lost an average of $147,000 through occupational fraud, compared to an average of $100,000 for companies with 1,000 to 10,000 employees.  1

Consider a few examples from within the automotive retail industry:

  • A dealership accountant issued checks made out to cash with her 17-digit credit card account number listed on the memo line of the checks. Instead of depositing the checks in the dealership’s account she used it to pay off gambling debts.
  • A dealer’s General Manager eventually pled guilty to fraud charges for altering lease documents to increase his commission by altering signed lease documents adding dealer-installed accessories that never existed.
  • An Assistant Parts Manager was fired after altering sales documentation by recording sales as a “quote only” then pocketing the cash. The losses were found when the parts department performed their annual inventory.
  • The parts manager at a Nissan dealer was convicted of scamming more than $165,000 from his dealership by submitting false warranty repair claims, 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 Honda dealership in Arkansas was caught skimming $25,000 from sales of parts on eBay. 2

Can You Afford to Gamble When Hiring New Employees?

What if you knew in advance that hiring the wrong job candidate could cost your organization thousands of wasted and lost dollars? Would you change your hiring processes? Would you invest in better screening methods? Most employers don’t realize that:

  • 30% of job applications contain false information.
  • 20% of workplace death is linked to alcohol or drug use.
  • Negligent hiring cases against employers have resulted in verdicts of up to $40 million.
  • The average settlement of a negligent hiring lawsuit is nearly $1 million. 3

Dealing with Workers with Substance Problems

One of the biggest challenges facing most employers today is dealing with workers that struggle over drug and alcohol problems. These employees are the most likely to lie, steal, cause accidents and create innumerable other problems for employers. According to the 2014 National Household Survey on Drug Abuse (NHSDA)

  • 27.0 million Americans age 12 or older admit to illicit drug use in the last 30 days.
  • 16.3 million Americans age 12 and older and 12.4 million adults admit to “heavy” drinking (5 or more drinks on at least 5 or more occasions in the past month). 4

These workers are involved in 55% more workplace accidents and sustain 85% more on-the-job injuries than other workers.  In addition the National Safety Council reports that 80% of those injured in “serious” drug-related accidents at work are not the drug abusing employees but non-using co-workers and others. Finally, the US Navy estimates that each drug user costs his or her employer an average of $6,600 more than non-substance abusing co-workers each year. 5

Fortunately there are instruments available to help employers make the right hiring decision the first time. These tools represent a small investment that can pay big dividends to employers that wish to avoid problems with employee theft, substance abuse, criminal record, performance problems, and related issues:

Background Checks

Comprehensive and timely criminal background check services provide employers with the information necessary to make an informed decision when hiring an applicant

Pre-employment screening refers to the process of investigating the backgrounds of potential employees and is commonly used to verify the accuracy of an applicant’s claims as well as to discover any possible criminal history,workers compensation claims, sex offender list, aliases, address history, governmental watch lists, motor vehicle records, and legal working status.  Background checks cost about $20 to $50 depending on how extensive the research is.

Drug Testing

Standard urine drug testing panels range from five to 10 drugs. Specimen validity testing is available to detect adulterants or specimen substitution resulting from a donor’s attempts to mask drug use. The use of an independent Medical Review Officer (MRO) to review all non-negative test results is recommended. Drug testing costs range from a low of $28 per drug test to a high of $42 per applicant.  77% of surveyed employers said that since implementing drug testing they were receiving a much better caliber of job applicants simply by telling applicants they require drug screenings.

The Step One Survey

The pre-employment Step One survey is used as a screening tool early in the candidate selection process. The survey, which can be completed by employees online, assesses work-related values such as employee background, employment history, integrity, personal reliability, and work ethic.

Don’t Miss The Signals

Most employers, whether inside the automotive industry or outside of it, probably tend to trust that their employees are for the most part honest and trustworthy. They don’t anticipate employee fraud and often miss the signals that all may not be as it seems when it comes to employee honesty and trustfulness. But within the Automotive Industry the ramifications for employee theft and fraud are enormous. As a 2015 National Automobile Dealers Association report explained:

  • More than 1.05 million people were employed at U.S. new-car dealerships in 2014, which is higher than any other auto-related industry.
  • New-car dealers, on average, employed 64 people per dealership.
  • Wages at new-car dealerships have increased an average of 3.3 percent since 2011, with employees, on average, earning more than $55,000 a year.
  • Annual payroll at new-car dealerships was more than $58.1 billion in 2014, an average of $3.5 million per dealership.
  • Total dealership revenue, which included new-car and used-car sales (as well as parts and service sales) reached an all-time high of $806 billion in 2014, an increase of 8.6 percent from 2013. 6

When auto dealerships and related businesses bring new workers aboard their managers don’t have access to a “crystal ball” that can help identify which employees might be prone to steal, lie or commit fraud sometime in the future.  But, by following the strategies and recommendations above employers should be able to reduce the potential for employee problems and avoid unnecessary expenses.

Notes:                                              

1. “Association of Certified Fraud Examiners – 2012 Report to the Nations – Key Findings and Highlights.” Association of Certified Fraud Examiners – 2012 Report to the Nations – Key Findings and Highlights. Association of Certified Fraud Examiners, 2013. Web. 15 Mar. 2016. <http://www.acfe.com/rttn-highlights.aspx>.

2.  “Stories of Employee Theft and Lies – DealershipForum.com.” Stories of Employee Theft and Lies – DealershipForum.com. DealershipForum.com, 1 Apr. 2008. Web. 15 Mar. 2016.

3. “Experience the Employee Background Checks.” Experience the Employee Background Checks. Profiles International, 2015. Web. 15 Mar. 2016.

4.  Hedden, Sarra L., Joel Kennet, Rachel Lipari, Grace Medley, Peter Tice, Elizabeth A. P. Copello, and Larry A. Kroutil. “Behavioral Health Trends in the United States: Results from the 2014 National Survey on Drug Use and Health.”Samhsa.gov.  Substance Abuse and Mental Health Services Administration, Sept. 2015. Web. 15 Mar. 2016. <http://www.samhsa.gov/data/sites/default/files/NSDUH-FRR1-2014/NSDUH-FRR1-2014.pdf>.

5.  “Marijuana Fact Sheet: What Is The Truth?” http://www.ndwa.org. National Drug Free Workplace Alliance. Web. <http://www.ndwa.org/pdf/Marijuana Fact Sheet 111913.pdf>. Web. 15 Mar. 2016.

6.  “NADA Data 2015 Report.” NADA Data. National Auto Dealers Association. Web. 15 Mar. 2016.

SIDEBAR:

Practical Tips For Preventing Employee Theft and Fraud

Personnel Management and Training

  • Conduct thoroughgoing interviews of all applicants and conduct detailed background checks, with pre-employment screening and drug testing.
  • Ensure that all new employees understand their job duties and responsibilities, especially with regards to safety and security.
  • Conduct regular security reviews and training sessions to bring all employees up-to-date as well as to review ongoing operations and procedures.

Systems and Procedures     

  • Make sure that all procedures in place for all departments – sales, service, parts, finance and accounting – are airtight and meticulously followed by all employees.
  • Conduct frequent audits, refresher training, and procedure reviews for all employees.

Security Technology

  • Install surveillance cameras and enhanced lighting in all areas of the dealership, especially covering blind spots
  • Conduct regular reviews of surveillance footage to ensure nothing suspicious is taking place.      
  • Invest in state-of-the-art locks and access control in areas where theft of valuables (cash, credit cards, checks, merchandise, parts, etc.) are most likely to occur.
  • Install alarms as necessary and conduct regular tests to assure they are functioning.

Preparing Next Generation of Business Owners

How to Ensure Your Kids Have the Needed Skills

By Chuck Sujansky

 According to Forbes Magazine 90% of American businesses are family owned or controlled. In terms of dollars and cents family owned businesses represent 50% of the US Gross Domestic Product. (1) Are you ready for the next generation of business owners

But family owned businesses also face some pretty stiff challenges. Less than a third survive the transition from the first generation to the next. Apart from the financial challenge, family-owned businesses fail because the first generation holds onto the reins too long or is reluctant to step aside. Sometimes the older generation simply fails to prepare the next generation for future leadership.

The Challenges of a Family-Owned Business

Many businesses are common in the automotive industry. New and used car dealerships, auto parts stores, collision centers and mechanical repair shops all are passed down to heirs. But how many of these offspring are prepared for executive leadership? What skills and abilities will the succeeding generation need to run the businesses successfully? To illustrate the challenges involved, consider the following case study. (2)

Bobby Hansen, the owner of a large suburban new car dealership has a dilemma. A second-generation owner himself, Bobby expected his three children to join the family business following college. But the new car business is much more complex since the days when Bobby joined the dealership following high school. As each of Hansen’s children graduated from college they assumed positions in different departments of the dealership.

The oldest son, Rob, joined the sales department and gradually became one of the top-producing members of the sales team. When the top management position in the sales team opened up he was a natural choice to assume the position.

Bobby Hansen’s middle child, his daughter Katy, spent summers during college in the dealership office processing paper work and managing records. Following graduation she came into the dealership full time to manage the office staff. Due to her knack for details and understanding of procedures she was well-respected by her employees.

Hansen’s youngest son, Billy, was the “gear head” of the family. He was passionate about cars and trucks and was very knowledgeable about repairing and customizing them. When he wasn’t managing the parts department he could be found tinkering under Next Generation of Business Ownersthe hood of a car.

Together the Hansen family was a formidable team when it came to running the dealership successfully. But when Bobby began to think about retiring from the business he realized he had a dilemma. Each of his three children possessed differing strengths and abilities and any of them could potentially be the best choice to lead Hansen Motors into the future.

The oldest son, Rob, was the obvious choice for future president of the dealership. But while he was good with people he disliked details and didn’t always see the big picture. His daughter was very detail oriented and well respected by her employees, but she didn’t necessarily understand the technical side of vehicles or possess the persuasive  skills to work with sales staff. Billy, the youngest son, possessed technical skills and a true passion for cars and trucks. But he showed little enthusiasm for managing others and showed no ambition for stepping up to greater responsibility.

Future on the Line

When it comes to preparing the next generation of leadership within any family business functional knowledge and skills are not always enough. Family members with specific skills in sales, service or office procedures may not be effective at supervising dozens of employees or directing a multimillion-dollar operation.

And selecting a successor without considering his or her skill sets only serves to postpone problems into the future and possibly sow the seeds of future challenges. For top leaders the question is not just “who is ready to step into the top spot and lead the organization now?” The problem becomes “what skills and capabilities will be needed by top leaders tomorrow to assure the dealership’s continued growth and success?”      

Specifically, owner Bobby Hansen needs to ask himself two questions:

  • Which of my children is the best candidate to succeed me now?
  • How can they each acquire the skills necessary to guide the dealership into the future?

The answers to those questions will help Bobby prepare for transition to the next generation of family leadership. In our experience the best strategy is to start with a validated assessment tool to determine each offspring’s strengths, weaknesses and potential.

After all, an auto technician wouldn’t begin repairing an engine just because the “check engine” light on the dashboard is glowing     g. He or she would first use an Onboard Diagnostic Scanner to evaluate the engine’s performance and pinpoint the components in need of repair.

The same is true of all of the people charged with managing the dealership. Before making promotion or development decisions the owner should take steps to evaluate each candidate’s skills, potential and developmental needs. We believe the most effective tool for that job is the Profile XT® by Profiles International.

Assessing the Future

Choosing a successor for the top leadership position of a family business, or any business, is tough. It’s possible to gain an objective assessment of a candidate’s qualifications and capabilities using validated instruments like the Profile XT®. Unlike traditional “tests” this assessment doesn’t evaluate accumulated knowledge or measure right and wrong answers. Instead it examines what an individual may need to succeed within a given position.

But it also pinpoints areas that person should develop to be effective within the job. It’s a reliable way to understand what an individual brings to the position as well as what the individual needs to learn to build on his or her success.

In the case of Hansen Motors, the oldest son might benefit from developing stronger financial management skills, learning performance management techniques, and understanding strategic planning concepts. Hansen’s younger son could benefit from improving his “people skills” as well as from receiving in-depth exposure to the dealership’s other departments. Bobby Hansen’s daughter could benefit from developing strategic management skills, receiving cross-department exposure, and gaining sales experience.

The final decision about which of his three children should succeed him doesn’t have to be made right way, so long as Bobby Hansen is committed to implementing a succession plan based upon the individual strengths, developmental needs and accumulated skills of each heir.

__________________________________________

  1. Aileron. “The Facts of Family Business.” Forbes. Forbes Magazine, 31 July 2013. Web. 11 Apr. 2016.
  2. This case study is based upon the experience of several family-owned businesses to whom we’ve provided consulting. Those businesses are ‘exemplified’ here to illustrate the challenges faced by family owned businesses within the automotive industry.

Fine Tuning Your Employees

How to make the “Hard Talk”, easy

By Chuck Sujansky

You know that sinking feeling! Your boss casually mentions that “it’s time for your annual performance review” and sets a date and time for that discussion. On most employees’ list of unpleasant experiences the annual performance review must rank somewhere near the bottom, just ahead of root canals and tax audits! But it doesn’t have to be that way. See what you can do to fine tune employees.

Dealerships couldn’t function without performance standards for their vehicles. The National Highway Traffic Safety Administration determines safety rules for vehicles. The US Environmental Protection Agency sets standards for pollution. And Corporate Average Fuel Economy (CAFE) regulations set the standards for engine efficiency and low fuel consumption. Yet too often organizations in the automotive industry, particularly dealers, fail to set standards of performance for their employees. As management expert Peter Drucker pointed out, “You can’t improve what you can’t measure.”

That Dreaded Conversation

The performance review is a valuable process that can clarify expectations, establish goals and prevent problems from getting out of hand. But the reason it causes so much dread – probably as much for reviewing managers as for employees – is because it’s conducted so badly by so many people. You’d be hard pressed to find an employee whodidn’t have a performance review “horror story.”

Why are performance appraisals so dreaded by employees and managers alike? For one thing many employees fear being judged and criticized. Too often the discussion seems to focus solely upon the employee’s failings or inadequacies. And those employee fears may be justified if the manager bases the discussion on a worker’s personality instead of his or her actual performance on the job. Plus, when the manager’s expectations for the employee are unclear (or unexpressed) the discussion automatically seems unfair to the worker.

In many cases the problem is a lack of clear and objective means of measuring the employees’ performance. In that situation the discussion becomes entirely subjective and seems totally unfair to the employee. Too often employees harbor negative feelings about performance appraisals because they associate them with criticism, demotions, lost opportunities and even lost money (should they fail to receive a raise).

The concept of rewarding employees for performance through raises and bonuses seems logical on the face of it, but unless the employees are commissioned sales representatives it can be difficult to measure their performance. Yet, while it may be more challenging to measure employee performance on the service side of a dealership, it’s well worth the extra effort.

Measuring Employee Performance by Department

The performance of employees within the F&I Department could be measured in terms of Gross profit per retail unit (new and used), extended service contracts sold, lease penetration or total F&I gross profit (among others). For sales personnel the metrics could include the number of units sold, the number of demos, the closing ratio ofine tune employeesf ups to closed deals, the number of appointments scheduled, and wholesale profit/loss or Internet sales leads closed.

In the parts department measureable performance could consider calculations likewholesale parts sales, counter sales, repair order sales, and gross profit margins, among others. In the service department employee performance could be calculated by measuring

For the service department reviewing managers can take into consideration technicians’ flat rate hours produced or clock hours worked, the hours per repair order by advisor, the number of appointments scheduled or the number of carryovers.

Dealerships typically track metrics like these, although not always in such detail per employee. But these variables are “track-able” behaviors and measures that can turn an employee’s performance review into a productive, informative discussion. While it’s important to track performance by the entire department, discussing an individual’s track record is the most effective way to improve individual efforts and sustain overall growth.

How Not to Conduct a Performance Appraisal

At all costs managers should avoid the tendency to base performance evaluations solely upon personal characteristics. It’s too tempting for managers to:

  • Base reviews on the employee’s personality instead of his or her performance.
    “Your not a hard worker – or – you’re not a team player!”
  • Avoid describing his or her specific expectations and standards.
    “You just need to work harder!”
  • Speak in generalities and abstractions.
    “you’re too introverted” or “you’re not aggressive enough”
  • Gloss over an employee’s real problems.
    “You’re still new here. You’ll catch on sooner or later”
  • Compare employees with each other.
    “Bill used to be just like you, but look at him now.”

    

An Organizational Tool

The performance appraisals can be so much more than just an excuse to critique employees once a year, or used as a justification for giving (or withholding) pay increases. Employee performance appraisals provide managers with the tools to make a powerful impact on their organization. Specifically, managers should consider the following points:

  1. Annual appraisals should not contain any surprises – managers should provide feedback on a regular basis.
  2. The employee’s goals should be made clear.
  3. Appraisal meetings should be a chance to clarify and modify goals or standards.
  4. Appraisals should include a plan for the next review period.
  5. The manager can take the opportunity to do some coaching.
  6. And perhaps most important … document, document, document!

For Additional Information

For more details about the manager’s roles and functions within performance appraisals, readers may order the eBookFrom Renter To Owner: Performance Reviews That Transform Employee Attitudes by Dr. Joanne G. Sujansky (a KEYGroup publications) by visiting www.keygroupconsulting.com. Select the “Products” option.