Comments Off on Dealers should not always rely on reports being printed for them
By Phil Villegas
As internal auditors and forensic accountants, we always approach most operational and accounting reports with a degree of skepticism because we ultimately know the impact that human behavior can potentially have on these reports. To emphasize how important it is for us to know the reports and data we are looking at are pure and unaltered, it is standard protocol for us to require our clients to provide us system access in most of our engagements. We will seldom, if ever, rely solely on client reports if the reports have not been run by one of our associates. While this can often create increased workload for our team, it’s fundamental to what we do.
The recent story below, which is true will highlight the importance of this.
One of our analysts, who was not as well versed with the UCS as he is with other DMS systems, had requested a copy of [...]
Comments Off on Interpretation of the APA – as with healthcare, get a second opinion.
By Marilou Vroman, CPA, CFE
Buying a dealership can be an exciting and stressful proposition. Working with manufacturers, lenders, attorneys and accountants all in the interest of getting past the closing table to run your new automotive retail venture. Many of the hurdles of acquiring a dealership can be overcome, but one area that can create a significant amount of stress between buyer and seller is negotiation and interpretation of the asset purchase agreement (“APA”) which governs the sale of the dealership assets.
For those contemplating their first acquisition, the APA will typically highlight what will be purchased (e.g. inventories, fixed assets, goodwill etc.) and the method of valuation of each type of asset. The interpretation of the “what is being sold and for how much” can put a dealership transaction at risk if left until the date of closing to be discussed between buyer and seller. For example, an APA will typically include new [...]
“We go to war with the Army we have, not the Army we wished we had.” is the essence of a Donald Rumsfeld quote I use often in our dealership consulting practice.
It’s a common reality in our line of work we are presented with circumstances that can often seem less than ideal. Whether it’s a buy-sell due diligence, internal audit or a forensic investigation, we always seem to find our dealers put into a circumstance where items such as data, financials, personnel and/or documents are missing as part of the equation.
In certain circumstances this lack of necessary elements to solve the equation is completely innocent or unintended, these situations are relatively easy to adapt to. However, it’s when the necessary elements are intentionally or deceitfully withheld that leaves us questioning the missing items in much greater detail and with significantly higher levels of scrutiny than if we were simply [...]
Comments Off on Mysteries Within the Balance Sheet
By Marilou C. Vroman, CPA, CPE
Mysteries at the Museum – for those who have seen the show, you know everything has a back story. This is not so different from the amounts which reside on your dealership’s balance sheet. When was the last time you had a financial review meeting at your dealership and got a comfort level with your reported prepaid expenses, accounts payable or retained earnings? It’s likely you are thinking, well why on earth would we need to do this when I already pay someone to watch this for me? Let’s put our Pink Panther hats on for a moment.
Automotive retail is highly focused on departmental gross, PVRs, expenses and net income. Most performance targets and pay plans are based upon these items and the ability of personnel with control over these areas to keep them in check and maximize profits for the dealer. While profitability is key, we [...]
There are just some things in life that we don’t expect to be pleasant or enjoyable, like visiting a Dentist or getting audited. Then there are things that always leave me scratching my head as to why they become as painful as they do without need…like dealership Buy/Sell closings.
I’ve taken part in dozens of Buy/Sell closings, and while each transaction will have its own nuances, timelines and complexity, the issue that I have found to be at the core of the stress factor in closings rests on the “competitive gamesmanship”. It’s in this gamesmanship environment where individuals from each side of the transaction might try to “get one over” on the other side, regardless of how refined the terms of the asset purchase agreement are. Irrespective of the specificity and definitiveness of the terms or the language in the agreement, at the closing, the spirit and interpretation [...]
Comments Off on Enforcement and Awareness – Key Tips to Prevent Cash Theft
By Marilou C. Vroman, CPA, CFE
Yes, your dealership is at risk. Even the best run dealerships personnel with highest level of integrity can be victims of cash theft.
Cash theft is commonplace in dealerships due to high volume and high dollar value transactions. Cash theft is often perpetrated through a method known as accounts receivable lapping. This is a type of fraud used to conceal cash theft through the intentional manipulation of customer receivable accounts. The typical lapping scenario is when a customer’s payment has been diverted by a perpetrator and a different customer’s payment is used to cover the absence of the funds which were misappropriated. This type of fraud is often conducted in smaller dollar amounts which can accumulate to large amounts over time. These schemes are very difficult to detect in the ordinary course, especially if there is collusion between the perpetrator and an individual in the accounting office with [...]
Comments Off on Trimming the fat from the month-end close
By Phil Villegas
With the new year, comes new year’s resolutions. Usually these are personal in nature, looking to improve certain aspects of our lives leading to people setting goals to improve their well-being, whether related to better ourselves physically, emotionally or our financial well-being. The new year provides a clear and definitive break point in which to embrace change, and this is by no means limited to individuals, this can also include our businesses.
If there was one common resolution I would like to see embraced by the general dealership population, it would be that of a 5-day (or better) month-end close. Despite advances in DMS software and business process flow management, one area that I still see as somewhat archaic is the 10 days or more month-end financial statement close. This practice is still very common in many dealerships, with the exception being some mega-dealers and public dealership groups.
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 Historic Financial Analysis can Improve Future Results
By Phil Villegas
“They say it has no memory (the Pacific Ocean). That’s where I want to live the rest of my life. A warm place with no memory.” This was a famous line from the movie “The Shawshank Redemption”. It has always reminded me of the attitude of many dealerships towards historical financial statement analysis. For many dealerships, after being provided unit sales count, gross and net profitability, past performance is often forgotten, and the endeavor of the new month is ahead, with no memory of the past.
With the New Year often comes renewed energy for change and improvement. These resolutions should not in any way be limited to ourselves as individuals, but should also be incorporated into our businesses.
One resolution would be the incorporation of detailed financial statement analysis of the dealership. While the thought of detailed financial analysis is enough to get most dealers, GMs and even Controllers to immediately [...]