Comments Off on Don’t Let Technology Keep You from Catching Your Next Embezzler
By Phil Villegas
I like to compare embezzlements to plane crashes. When a plane crashes it is usually not the result of one system breakdown, but rather a series of simultaneous breakdowns; a convergence of elements that end in disaster. Perhaps the only difference when compared to dealership embezzlement is the convergence of elements is extended over a period of time, not a single day.
There is one vital internal control in protecting dealerships from embezzlement that has been tail spinning into decline because of advancements in technologies and that’s the review of Cancelled Check. 15 years ago it was commonplace to receive a huge envelope every month with all the cancelled checks, nowadays this is considered archaic, with cancelled checks only being available to be viewed online. This problem has led to Owners, GMs and Auditors not routinely reviewing cancelled checks. Keep in mind, a proper review of a cancelled [...]
Comments Off on Four simple steps to control your travel and entertainment expense.
By Marilou Vroman, CPA, CFE
In many years working as a dealership controller and as an internal auditor, I’ve unfortunately seen frequent cases where employees have taken excessive advantage of a dealership’s travel and entertainment policy. Travel and entertainment normally are common business expenses for dealers, such meetings with manufacturers, conferences, technician training, and travel between multiple rooftops. While travel may be viewed as an inconvenience to some employees, others view travel and entertainment as an opportunity for enrichment. The question becomes, at what point do business travel expenses go from necessary and reasonable to an abuse of privilege and self-enrichment at the detriment of the dealer?
You’ve probably seen it or even experienced it – lavish dinners with expensive cocktails and wine, the five-star hotel room and “resort” fees to cover the golf cart and 18 holes, the first-class tickets to Europe, an occasional spa treatment or luxury rental cars. Some dealers may choose [...]
Comments Off on A Few Steps to Take Prior to the Storm
With Hurricane Irma on course to hit some part of the U.S. within a few days, this is a good time to take some steps that may minimize disruption in the event you are in the unfortunate path of the storm. While each dealership will have its own unique facility and vehicle preparation steps, this Weekly Spiff is to highlight some of the administrative steps that could get overlooked in the process.
A. Update all employee contact information with latest mobile phone number.
a. Make sure all employees are assigned to a key Departmental Manager for notifications and updates.
B. Take a copy of your dealership’s insurance information and refresh your understanding of your business interruption, windstorm and flood coverage. Make sure to have the proper insurance claim phone numbers to contact and ensure any premiums which are due have been paid.
C. Have check stock that can be hand-written in the event of extended [...]
With the topic of healthcare so frequently in the news and topics of discussion, I couldn’t help but notice how people feel about preventive care is quite like how some dealers feel about internal audits.
I recently visited the doctor for an annual physical and went through the usual tests including EKG, blood work and X-rays to help reveal any underlying health issues I may not be aware of. I felt perfectly fine during the visit, and all the outward signs of being healthy were present. The test results fortunately revealed everything was just fine. So, if we appear to be healthy on the outside, or our last physical was good, why do we keep going through the process of missing time from work or family, the unpleasantness of medical testing, and paying for those surprise lab bills that are not covered by insurance? Put simply, it’s for peace of [...]
Comments Off on Auditors aren’t the only individuals who need to be in a professional skepticism frame of mind.
By Eduardo Hernandez
One of the perks of working for a dealership is (hopefully) getting a good deal when it’s time to buy or lease a vehicle. Whether it’s applying a legitimate employee manufacturer incentive(s) and/or structuring an aggressive deal, there are many ways to get a good price. Regrettably, there will be employees that are going to try to do everything to get an even better deal and it’s something we’ve seen happen time and time again. Those on the frontlines of the dealership, like salespeople, F&I managers, or sales managers, are in the best position to take advantage of the dealership for personal gain.
Recently during an audit, we found a single journal entry to write a vehicle down by almost 20% to “market value,” that was requested and approved by a sales manager. It turned out, this vehicle originally belonged to that same sales manager who sold the vehicle to the dealership [...]
Comments Off on It’s no Holiday when employees’ responsibilities are limited to one individual.
By Phil Villegas
I’ve noticed certain reoccurring patterns in many of the dealerships I’ve had the opportunity to visit. There always seems to be that one particular, heavily relied upon individual who tackles certain tasks. No one else would even dare to complete the tasks and responsibilities of this individual if they went on vacation. Instead, they would opt to let the work sit and wait for the employee to return. While under many occasions this can be completely innocent with no ill will, more often than not, there can be major risks associated with this. Many of the cases of embezzlements I’ve encountered have often been linked to job responsibilities that are specific to one employee. The dealer’s losses become compounded and can extend for longer periods of time because no one checked or picked up the tasks of this individual.
We discovered an instance of this during one of our internal audits. A [...]
Comments Off on Proper Handling of Export Transactions can be Taxing..
By Phil Villegas
Is your dealership properly handling exports transactions in accordance with state and federal laws?
In our Axiom Analysis, we often discover weaknesses in vehicle export processes and documentation. If an international customer purchases a vehicle with the intent to export, the customer is not exempt from sales tax unless he or she provides proper documentation.
If a customer intends to export a vehicle, the dealership has the responsibility to prevent the customer from driving the vehicle off the lot by issuing a temporary tag. Direct exports are typically not charged sales tax and are not registered. In turn, typical export rules indicate the vehicle must be paid in full, an affidavit that the vehicle won’t be driven in the selling dealer’s state must be signed, and a bill of lading must be collected for the deal jacket. In addition, we often recommend new vehicles be titled to prevent a MSO from being [...]
Comments Off on The importance of controls over employee transactions
By Eduardo Hernandez
Employee transactions are likely one of the riskiest recurring transactions a dealership will face on a recurring basis. Whether it’s a vehicle sale, repairs, parts sales or an expense reimbursement to an employee, there are various ways where an unscrupulous employee could try to take advantage of the dealership.
Some of the creative things we’ve seen employees do include:
Buying a popular trade at cost (usurping the dealership of an opportunity to make gross).
Trading a vehicle back to the dealership for more than what they purchased the vehicle for.
Power booking accessories into a finance contract and keeping the extra proceeds from the funding.
Giving themselves generous discounts on service and parts where the store loses money.
Leaving a personal repair order or parts ticket open and neglecting to pay for an extended period.
Duplicating reimbursements or submitting receipts for non-business transactions.
As a general note, we recommend implementing [...]
Comments Off on The lost art of internal controls over journal entries will cost you thousands.
By Marilou Vroman, CPA, CFE
Remember a time when journal entries were hand written on green ledger paper and were reviewed and approved by the controller prior to posting? In a time when our DMS systems have enabled ease of journal adjustments through source journals we have found more opportunity for theft and income manipulation than ever before.
During our internal audits we often review adjusting journal entries very closely; we have found there is an inverse relationship between the cleanliness and “health” of a dealers financial records and the volume of journal entry adjustments that occur within the dealers books. In a perfect world, there would be very few adjustments since every transaction would be recorded correctly up front. Since we are not in a perfect world, it’s important to know who is adjusting the books, why those adjustments are being made and whether the adjustments have been properly approved by department management.
Comments Off on It’s not only about identifying vehicles on the schedules or floorplan
By Phil Villegas
We often come across dealerships where the process of taking monthly physical inventories is a bit relaxed. When asked about their physical vehicle inventory procedures, we are often told:” Yes, we do physicals…our sales department handles that” or “Our bank does a floorplan check monthly” or “Yes, we have a porter touch all the cars.” While these might be elements of verifying the vehicle inventory, these approaches do little to identify any missing cars.
We typically recommend:
Have an individual who is independent of the sales department write down/scan all cars present on the lot. Do not provide an accounting schedule or other listing of inventory to those conducting the physical.
The results of the physical inventory should be reconciled with accounting schedules to identify both vehicles missing from the lot and vehicles missing from the schedules.
A reconciliation summary of the status of all missing units should be properly investigated [...]