The digital age has revolutionized the car-buying experience but has also opened the door to a new wave of scams. Identity theft and loan application fraud have become significant risks for online auto buyers and dealerships. In this article, we’ll delve into how this technology can be your secret weapon in the fight against digital fraud in the auto retail industry.
Why All Dealerships Should Be Concerned With Internal and External Fraud Risks
Picture this: it’s March 2023, and two dealership employees have just been arrested for fraud and forgery. And they’re not the only ones. Unwanted warranties and add-ons, fraudulent electronic signatures, and even “power-booking” are all rising.
But it’s not just about the loss of potential profits. Your dealership’s reputation is at stake. What if you were faced with similar allegations?
The good news is that you can take steps to protect yourself. By implementing external and internal controls, you can safeguard against fraud that could damage your revenue and good name. Don’t wait until it’s too late – start taking action today.
The Rise of Fraud in the New Digital Auto Retail World
Did you know that 96% of car buyers are eager to apply for financing online? Why? It saves time and is more satisfying than traditional in-person dealership experiences, according to the 2021 Cox Automotive Car Buyer Financing Journey Study.
What’s more, one in five car buyers completes over half of their auto purchase process online!
But here’s the catch: dealership fraud is on the rise. In fact, some alarming statistics reveal that 84% of dealerships report instances of identity fraud, with 79% suffering losses as a result. To make matters worse, 77% of dealers reported increased loan application fraud and lacked proper protection against identity fraud.
Don’t worry; there are ways to protect your dealership and customers. Let’s explore them.
The Importance of Verification Technology in Preventing Fraud
Are you an auto dealer who relies on scanning or photocopying customers’ driver’s licenses for ID verification? While it’s a popular method, it’s not foolproof. What if the license is fake or stolen? Enter verification technology – the missing piece to your customer validation process.
With verification technology, you validate the license and verify the person’s identity and address. Plus, it helps you “red-flag” potentially dangerous individuals, satisfying Office of Foreign Asset Control (OFAC) regulations.
This technology is so secure that it’s now used in many online banking applications too!
Don’t settle for scanning alone; upgrade to verification technology and protect against fraud.
Steps to Build and Implement an Internal Audit Program
Fraud can wreak havoc on a dealership, but internal controls can help prevent it. To build a strong internal audit program, follow these five steps:
- Create, review, or update your policies and procedures manual, and schedule regular reviews to catch any areas for improvement.
- Identify key areas from your manual to test regularly.
- Ensure staff and key employees know their roles and responsibilities and properly segregate duties between departments.
- Assign individuals with regular audit responsibilities.
- Follow up regularly to make sure everyone is on track and held accountable.
With these measures, your dealership can be more secure and protected against fraud.
Conclusion
Fraud is a major threat for auto dealerships in the modern digital retail world, whether committed from outside or within the organization. Fortunately, there are effective ways to combat it. One uses verification technology, and another implements an internal audit program. These two tactics can help dealerships spot gaps in their internal controls and prevent fraud from happening.
For more information, please contact Keith Laundenberger via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
