Comments Off on New Reporting Requirements on Foreign Owned Disregarded Entities
By Dan Flugrath, CPA
The Treasury Department and the IRS finalized regulations on reporting and record maintenance regarding foreign owned disregarded entities on December 13, 2016. If your U.S. dealership is fully or partially owned by a Single Member Limited Liability Company (SMLLC), which in turn is owned by foreign individual or foreign entity, these new rules apply for your 2016 income tax returns and going forward.
Disregarded entities can be domestic or foreign entities. The new rules are for reporting purposes only. No changes apply for purposes of filing income tax returns.
The new regulations impose information reporting requirements on financial transactions between the disregarded entity and its foreign owner. These rules are not limited to the retail automotive industry. The foreign or domestic disregarded entity must obtain a Federal tax ID number if any reportable transactions occur. Previously these disregarded entities had no obligation to report information to the IRS.
Why are we talking about petty cash? It’s petty! … Or is it? We have seen several cases at dealerships recently where abuse of petty cash has led to tens of thousands of dollars in losses. It is a testament to how often the petty cash may be overlooked at a dealership and where key controls to mitigate losses may be missing.
Petty cash at dealerships often have balances that range from $500 to $3,000 to cover immediate cash needs, such as spiffs and deliveries, without having to wait for accounting to issue checks. While a common practice, this comes with the risk that cash could be misappropriated. What is the best way to prevent this from happening? Segregation of duties.
Access to the petty cash box should be limited to select individuals that do not also have access to accounting functions in the DMS, such as journal entries, or cash [...]
Comments Off on Make your life easier, accrue for the “extra” payrolls!
By Mike Frakes
Early in my career when I was a Controller, I was surprised by those two “extra” payrolls that occur every year. The dealership was on bi-weekly payroll and I was not accruing for the two times a year that there were three payrolls in a month. This resulted in two massive expense spikes. Nothing will take the wind out of a General Manager’s sails quicker than him or her thinking a certain amount of net profit has been generated based on average expenses only to find out that it was a three-payroll month.
I began accruing for the additional two payrolls in my second year as a Controller and continued to do so year after year. The calculation was simple. I took the last payroll of the year, added 10% and annualized it to get my monthly accrual amount. For example, if the final payroll was $100,000 for non-commissioned employees (including payroll [...]
Comments Off on Impact of Volkswagen Settlement to Dealers in USA
By Dan Flugrath, CPA, CFP
Volkswagen Group of America reached an agreement with VW – Branded Dealers with a class action settlement on October 18, 2016. The Federal Court will hold a fairness hearing on January 18, 2017 at 8:00 A.M. to make a determination as to whether or not the initial court-approved dealer class action notice is fair and to decide whether to approve the settlement.
As a result, Volkswagen dealers are facing two financial matters stemming from the actions of the manufacturer. Those two financial matters are classifying the settlement proceeds as lost profits or as reduced value of their Blue Sky or Goodwill. The allocation of the compensation between these two distinct items will have a significant tax difference. The difference arises due to the Blue Sky being a capital asset which is taxed at capital gains rates vs. lost profits being taxed at higher regular income tax rates.
Comments Off on How to Increase Transparency in Your Parts Inventory
By Jorge Arrieta
In the automotive industry, we tend to see employees performing tasks in a certain way because traditionally “it has always been done that way,” yet often no one questions why?
The New Year is a great opportunity to review and improve on our operational procedures. The parts department is a perfect example of old habits that die hard. For example, for dealers using CDK, the use of the “display/sell” or “DS” function can be used to adjust parts inventory. This function can be appealing due to the convenience it provides however, when the display/sell function is used, the parts pad can be modified without management authorization or a paper trail. In addition, the accounting records may adversely be affected because accounting personnel may not be notified of the adjustment, or have visibility to test if the transaction should be recorded in the general ledger. One of the largest concerns is the risk [...]
Comments Off on Why your dealership needs a fraud tip hotline
By Mercedes Hendricks, CPA
It is a common misconception that when your dealership is audited or reviewed by an external CPA firm that they would be able to detect fraud. An audit or a review is designed to ensure annual financial statements are fairly stated and presented in accordance with the reporting framework selected. While extensive procedures are performed, particularly in an audit where the CPA is required to understand and test internal controls throughout the year, these services are not, in fact, designed to detect fraud.
According to the ACFE Report to the Nations on Occupational Fraud and Abuse in the 2016 Global Fraud Study, 39.1% of all fraud cases included in the study were discovered through a tip. An external financial statement audit was much further down the list with only 3.8% of the fraud cases uncovered with this method.
Tips are more likely to be submitted by establishing a fraud tip hotline [...]
Comments Off on Start your New Year off right, plan now for Year-End
By Mike Frakes
During my 13 years as a Controller, I would try to begin as many year-end tasks as possible during December. A little bit of preparation in December always saved me a lot of time and headaches in January. Hopefully the checklist below will save you time and frustration as well:
Review the balance of every Balance Sheet account thoroughly.
Review all bank account and floor plan reconciliations for reconciling items.
Review the vendor list for 1099 compliance.
Perform the year end physical inventory of units on December 31st.
Review depreciation accruals for accuracy.
Ensure there are no prepaid expenses with useful lives that do not extend past year end.
Verify that your reported payroll taxes are accurate. By doing so, you can make sure to minimize any penalties for underpayment, or take credit for any overpayments.
Verify that the estimated payments for state and federal income taxes are adequate, and make [...]
Comments Off on One of the Most Substantial Accounting Standards to Impact Auto Dealers
By Mercedes Hendricks, CPA
There have been so many changes to accounting standards in the last year it can be hard to keep up! One of the most significant changes that I believe will impact auto dealers is the new lease standard.
In an effort to make financial statements more consistent, the long-awaited leasing standard was issued in February 2016. Dealers lease land, facilities, equipment; these leases have often been treated as regular operating leases where straight line rent is recorded in the income statement. In some cases, certain criteria triggered the leases to be capitalized and recorded on the balance sheet.
I expect that the new standard will result in substantially more leases being recorded on the balance sheet. For example, a two year storage lot lease, which may still be considered an operating lease under the new standards, will likely be recorded on the balance sheet. Generally, [...]
Comments Off on Taking Ownership of Your Largest Movable Asset
By Phil Villegas
In continuing my theme of focusing on the fundamentals, I thought I’d focus on one of the most basic internal controls that is overlooked or not taken as seriously as it should, and that is the taking of vehicle physical inventories. For most dealerships this is the single largest asset on the books, and unlike real estate and Blue Sky, these asset can actually be easily moved. Time and time again when we inspect dealership’s physical inventory counts we are left concerned with the thoroughness and seriousness with which they are completed. Many stores will not complete new car inventories since they will say the floorplan company does that or many accounting offices will simply say the sales department does that.
In our opinion, the accounting department is not doing its job if it does not take full ownership of the vehicle inventory process. Deferring this key control to a floor plan [...]
Comments Off on The 2016 Presidential Election: Considerations for 2016 & 2017 Income Tax Planning
By Dan Flugrath, CPA
One of President-Elect Trump’s campaign themes was to lower business and individual income tax rates. Currently for 2016, Individuals are subject to a top income tax rate of 39.6% plus 3.8% tax on net investment income amounts while C Corporations are taxed to a top rate of 35%. House speaker Paul Ryan put forth in August 2016 a tax proposal called “A Better Way for Tax Reforms”. Under House Speaker Paul Ryan’s proposal, the maximum tax rates for small businesses and corporations are reduced to 25% and 20%, respectively.
President-Elect Trump is expected to lower Individual top rates to 33% and C Corporations to 15% based upon his campaign. With this expected lowering of tax rates, year-end tax planning strategies are easier to understand relative to previous years, especially for high income taxpayers. Increasing lawful deductions and deferring income amounts to 2017 as much as possible can [...]