Automotive Updates

Automotive Consultants, Automotive Dealership Consulting Firm, Enterprise Management Services, Mergers & Acquistions, Litigation Support

By Mercedes Hendricks, CPA

We all know and understand the fraud triangle; that fraud most often occurs when individuals have external financial pressures, are presented with opportunities to commit fraud, and can rationalize their behavior.  While you may not be able to influence financial pressures or rationalization, you can minimize the opportunities by implementing preventative internal controls.

What do these internal controls look like?

  • A no-tolerance culture for fraud. Sure, no one will say that they tolerate fraud.  But take a close look at the culture of your dealership.  Do you talk about fraud and communicate your no-tolerance policy?  Do your leaders follow that policy and model it for the rest of the employees?  Creating an environment where integrity is the trump card is a great way to prevent fraud.
  • Require individuals with access to the DMS to take vacations, and have their duties covered by another trained employee during their absence.  You might [...]

By Jorge Arrieta

In any dealership, parts may be considered assets at the highest risk. Why?  Because parts theft could very easily remain undetected since few people monitor parts activity besides parts managers. Between the high transaction volume, frequently changing part numbers, returns, new vendors, and special orders, it can be a challenge to know everything that has been happening in the parts department.

By implementing a daily bin count and an annual physical inventory, dealers and controllers can have more control over their parts inventory.

When performing a daily bin count, one should select a few high risk parts from the parts pad and verify they are still in inventory. Some examples of parts to select include those that have a history of plus/minus adjustments, scrapped parts, and parts sold for low or negative gross profit on parts tickets or repair orders.

We recommend having an individual from the accounting office trained on the [...]

By Phil Villegas

More often than not we come across stores that are showing rent expense that is far below what the dealership would pay in the open market.  For the most part, this happens because the rent has not been reviewed or adjusted for many years.

However, with increasing industry and commercial property values in many areas, we recommend adjusting the rent charged to your dealerships to market.  This may actually save you money in stores where the General Manager, Controller or other personnel have a pay-plan component that is based off of the bottom line.  Having the proper rent amount also provides for a financial statement that is reflective of the current market.  We have seen dealers severely disappointed when selling their stores to find out their perceived profitability dropped because of a market rent adjustment.

An easy way to determine fair market rent is to take your most recent appraisal, or come [...]

By Odette Mikhail, CPA

Now that April is behind us and your corporate returns have either been filed or extended, it’s a great time to look at the new tax plan released last Wednesday by the Trump administration. The plan would have broad impacts on the auto industry, from global auto manufacturers to mom-and-pop car dealerships.

With the new Trump tax reform, most businesses with high tax rates seem to be finally getting a break. The plan would cut the 35% corporate income tax to 15% for all businesses. While this sounds like it’s a dream come true, this tax cut comes with many reductions or eliminations to corporate deductions that a business may currently take advantage of.

The plan imposes a one-time 10% tax rate on corporate cash held overseas as a way to make America’s corporate tax globally competitive, avoid tax maneuvers and encourage investors to put their money to work in America [...]

By Mercedes Hendricks, CPA

The Parts Management Report is full of great information…if you know how to read it!  The details that comprise the DMS’ parts inventory management report are extensive and, while difficult to navigate, can tell you a lot about how well the parts manager is controlling the inventory.

The parts pad is the perpetual parts inventory record.  The inventory management report provides a record of parts ordered, stocked, invoiced, sold, returned, and yes, adjusted.  Why would there be adjustments in the pad?  Often what happens is a parts manager or employee performs a bin check and notices a difference between the parts physically on hand and the pad count.  This difference is then manually adjusted to reflect the physical bin count.

Inventory adjustments may be done with perfectly good intentions.  The problem is that if these differences are not thoroughly investigated before being adjusted in the pad, even the best of intentions [...]

By Phil Villegas

There are multiple fashions by which individuals can take funds from a dealership.  Nearly every position within a dealership has a way of monetizing inappropriate behavior.  Most dealerships will attempt to implement safeguards in key areas of risk, particularly over cash, whether it be two signatures on all checks, segregation of duties on deposits, or review of bank reconciliations.  However, there is one area of cash controls that I commonly find does not have an adequate level of internal controls, and that is over credit card refunds.

Many dealerships allow for customer credit card refunds on nearly any terminal without any system of internal control.  We’ve seen multiple occasions where these credit card terminals have been used to embezzle funds from dealerships by individuals giving refunds on personal cards. In all cases, we found that some basic internal controls could have prevented this from occurring.

To safeguard against credit card refund abuse, [...]

By Dan Flugrath, CPA

The Protecting Americans from Tax Hikes Act (PATH ACT) added a new provision for Bonus Depreciation regarding Qualified Improvement Property (“QIP”).  The significant change is the dealership or dealership owners or principals can own the premises.

QIP are improvements to the interior portion of a building that is non-residential property that is placed in service after the date the building was placed in service.  There are 3 improvements which do not qualify for this expensing election:

  1. Enlargement of building
  2. Any elevator or escalator improvement
  3. Internal structural framework of building

Prior to the PATH Act, Qualified Leasehold Improvement Property (“QLIP”), improvements to leased property that was at least 3 years old, that was not leased to a related party and met the definition of Improvements similar to the QIP rules above was eligible for bonus depreciation.

The difference between the QIP and the QLIP rules are:

  1. The underlying property [...]

By Marilou C. Vroman, CPA, CPE

We often encounter dealers who ask:  how many people should we have in the accounting department? As retail automotive advisors, we love to reference NADA, which has a guide of 15 total employees for every one accounting staff.  Our answer is typically: NADA guide, plus one.

The accounting department is a cost center which is typically difficult to calculate an ROI. However, in an environment where cash is king and profitability is everything, justifying additional headcount is often frowned upon.  Why would we want to add more people?

Accounting staff are often playing catch up, feverishly billing the stack of deals that comes up the last day of every month, preparing commissions, meeting tax deadlines, processing timely payroll and so on.  We find the pressure on staff to just “clean” the schedules each month is often so great that thousands of otherwise collectible dollars are written off with little [...]

By Mercedes Hendricks, CPA

“Save it for a rainy day” – that was a phrase my dad would say when I received some money as a kid that I wasn’t expecting.  This saying has a positive connotation, right?  Receive some money today, put it in the bank and save it for when you need it.  In dealer’s terms, I am referring to factory incentives, sales packs and other similar items where you have recorded a reserve instead of recognizing the income, even though it has been earned.  This is a philosophy that many of my dealership clients use in one way or another.

While a common practice, interestingly, we have seen first-hand how this approach can get dealers into trouble.  The problem with “rainy day” reserves is that there are rarely sufficient controls in place over how they are to be used, which can lead to errors, or worse, manipulation.  If you are going to [...]

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