In this challenging industry, some shops have been the target of a wide range of fraud and scams recently. Following are some ways businesses have fallen prey to the unscrupulous and steps you can take to protect yourself.
An inside job
In 2007, police arrested the bookkeeper of a collision repair shop in Clovis, Calif., for embezzling $415,000 from the business. Over four years, the bookkeeper ran credits of as much as $1,000 a month on a personal credit card. (A call from the bank about activity alerted the shop owner.) In the books, she indicated checks made out to herself were payable to shop vendors.
Jesse Henry, owner of Superior Automotive, a 25,000-square-foot body shop in San Francisco, had significant losses at the expense of an embezzling bookkeeper.
"I trusted this woman with everything," Henry says. "She did my payroll and everything. It was just the two of us in the office then. She wrote herself checks and bought computers and iPods on our credit."
If the embezzling weren't bad enough, Henry's employee also helped organize a Christmas party for employees at the shop. At the party, her boyfriend, thanks to a tip from the woman, broke into Henry's home and stole $50,000 worth of property, some of which police recovered at the woman's apartment.
What both shop owners now recommend: Conduct background checks before hiring. The Clovis, Calif., shop owner was unable to check his employee's prior references because, ironically, her last two employers went bankrupt. A background check would have alerted him she had a history.
Other fraud prevention tips:
- Sign checks yourself or review check copies each month.
- Make sure all checks are accounted for, including damaged or voided ones.
- Compare accounts payable checks to vendor statements.
- Assign different people responsibility for writing checks and reconciling the account.
- Have bank statements mailed to your home.
- Consider requiring a passcode – known to only a few employees – be entered to process a credit to a credit card.
Phony payment
A West Coast shop owner says one of his employees accepted two money orders, totaling about $2,000, from a customer for a repair. The employee thought all money orders are good because you have to pay cash for them. Several days later, however, the shop's bank returned the money orders because they were invalid. By calling the phone number for the business where the money orders were supposedly issued, the shop learned they were counterfeit.
The owner says fraud could have been avoided if the shop had verified identification of the customer and matched it to the money order and vehicle registration. The fake names, addresses, signatures and phone numbers given by the customer and for the money order should have raised a red flag.
The owner's managers now know any type of check or money order must be validated before releasing vehicles.
Credit card fraud
Dozens of shops across the country have reported getting operator-assisted relay calls, which are designed to assist the hearing impaired, from a Dr. Sherry Smith, who claims she wants a vehicle painted. The caller offers to put $1,000 down on a credit card but wants the shop to wire $820 to a shipping company that will deliver the car to the shop.
Similarly, Alpine Autobody in Vancouver, Wash., received a relay call from a would-be customer who said he was in an accident en route to Texas and wanted to have his car towed to the shop. The tow company didn't take credit cards, the caller said, asking the shop to charge $3,500 to the caller's credit card, keep $500 as a deposit and wire the rest to them near Texas.
The Better Business Bureau of Northern Indiana says such exchange of funds usually involves a scam with stolen credit card numbers. AT&T and the Federal Communications Commission say many relay calls are done via Internet and can't be traced. But FCC says businesses shouldn't hang up on such callers because the Americans with Disabilities Act requires companies to make services available to the disabled. Always take precaution when accepting credit card payments:
- Be wary of cards not signed or that lack standard features (hologram, security code).
- Ask for identification from anyone paying with credit.
- Use the address verification service card processors offer, especially when accepting a card payment via phone. It allows you to enter the cardholder's address and the card number to make sure it matches the account. (See sidebar for more credit card fraud prevention tips.)
Nefarious vendors
In a scam common a few years ago, a bedliner company would call saying it will market the shop and send referrals if the shop buys its bedliner products. The shop is told a referral has come in for a fleet of trucks that will require the shop to prepurchase a large order of material. The fleet of trucks never shows up, and the pre-purchased material ends up being not usable or unreturnable.
In another scam, a shop buys a paint booth online, but the company reports that just before delivery it was stolen from the truck, no refund is allowed, and the shop is told it will have to file an insurance claim.
Be cautious about whom you choose to do business with. Check them out as you would a new hire.
Protect your ID
In 2007, two shops in the same small town in Ohio reported their companies' federal tax ID numbers were fraudulently used to establish cell-phone accounts or make purchases at national office supply chains.
Dawn Hilty of Wingate Body Shop in Findlay, Ohio, got a call from AT&T to confirm her business was applying to purchase 25 cell phones. She received similar calls in the next week, learning someone was trying to purchase 100 cell phones. The next week, she got a letter from Staples saying it was denying her credit application (she hadn't applied) and an invoice from Office Depot for $5,224 for four computers purchased in Alabama.
Boutwell Collision, also in Findlay, started getting calls about attempts to start credit in the shop's name (using its federal tax ID number) at Home Depot and Cincinnati Bell Wireless and getting a Staples card showing the shop had applied and been approved for a $5,000 credit line.
Both shop owners say they lost no money, but after hours spent calling police, FBI, Federal Trade Commission, banks and credit bureaus, they note that there's little protection for businesses from identification theft.
Eventually, Hilty was able to place a fraud alert with Dun & Bradstreet. But she and identify theft experts caution businesses to protect their federal tax ID number by:
- not including it on estimates;
- limiting how many employees have it, and ensuring how it's to be used;
- not giving it to callers without confirming who they are and that they have a legitimate need for it; and
- shredding any documents to be disposed of that include it.
Technology-based scams
A man visited a body shop in Portland, Ore., claiming to be from the shop's credit card processing firm and needing to upgrade the shop's card processing terminal because of new smart cards that include an embedded computer chip.
The office manager got suspicious when the man arrived in a Hummer, had no business card and showed her a photocopy of what he said was an article from a local newspaper about the smart cards. The "article" was full of spelling and grammatical errors. The office manager called the card processing company to confirm the man wasn't at the shop on their behalf. When she told him that, the man left quickly. Experts say access to the processing terminal may have allowed the man to obtain shop customers' credit card data or payments made to the shop.
Last year, Clarke Collision Center's owner in Hudson, Ohio, was urging shops to use updated virus software after cyber thieves appear to have installed software on a shop computer that enabled capture of the company's online banking passwords. The shop contacted its bank when, after logging in, the online service was shown to be down for maintenance. The bank said that within three hours of the shop entering its login information, a number of money transfers had emptied the shop's accounts. (The bank was able to reverse some transfers and restored funds even on those it could not.)
More scams by phone
Another West Coast shop warns of a jury duty scam the FBI issued a warning about in 2006 that continues. A caller to the business identifies himself as an officer of a local court and tells the person taking the call they failed to report for jury duty and that a warrant has been issued for his arrest. When told a jury summons was never received, the caller says he can clear up the matter but just needs a birth date and Social Security number for verification purposes.
In 2008, the Oregon Department of Justice took action against a Canadian online phone directory company for billing small businesses for unwanted online advertising. The regulator said http://UnitedStatesBusinessPages.com was calling businesses on the pretext of updating its listings. The company recorded the business owner answering "yes" to a series of questions about the address, phone and fax numbers of the business. It used the recording to claim the business agreed to purchase a $500 online ad.
You cannot protect your business 100 percent, but by following this advice and helping employees ferret out scams – you can make sure the unscrupulous have to work as hard as you do to access your money.
