It doesn't take a rocket scientist or a CPA to realize that we are now operating in an ever-changing, highly regulated business environment.
Since the Enron scandal, the concept of internal controls and regulations has required management to step back and look at how it has been overseeing operations.
These internal procedures take on a new meaning as new litigations come to light.
Dealerships have been inundated with new regulations from federal and state agencies in the form of finance and insurance compliance, privacy safeguards and Internal Revenue Service reporting.
Failure to comply with these regulations results in fines and lawsuits from various agencies, consumer advocacy groups, employees and others.
What should you do? Place more emphasis to ensure that internal controls and processes are created or reviewed to ensure that internal controls of all dealership systems are implemented, documented and overseen by multiple levels of management.
Regular internal audits can benefit your dealership. I have seen an increase in dealerships using them in recent years.
We have seen internal audits as part of large corporations, not small dealerships. It is time to look at establishing these processes throughout automotive retailing.
Let's focus on three benefits that an internal audit process can bring to your dealership: safeguarding assets, complying with regulations and improving processes.
We have all heard stories of fraud. Yes, the “F” word. It has probably happened to someone you know. A strong internal audit function will strengthen controls and help mitigate opportunities for fraud.
Dealership accounting operations normally do not have enough personnel to provide an adequate separation of duties necessary for good internal controls. Additional controls are needed to help safeguard and protect your assets.
An effective internal audit program can help find areas of weakness and provide protection you need. Random, unannounced checks of cash funds, open repair orders and voided parts tickets can go a long way to helping deter crime.
Meanwhile, the new regulatory requirements placed on dealerships in the past few years are staggering. F&I fraud schemes have been in the news. How do you protect yourself?
Obviously, the groundwork is developing the processes necessary to assure compliance with all regulations. Whether it relates to F&I, privacy or IRS regulation compliance, dealership personnel must be adequately trained and the systems in place to monitor compliance.
That is where the internal audit function fits in. The audit team can plan an approach that will test the dealership's compliance, allowing for early detection of areas of concern. It will keep you out of court and out of negative news stories.
In our ever-changing business environment along with new technological developments, there are always new and better ways of accomplishing tasks.
As far as improving processes, internal audits not only spot deviations from company policy, but can also find processes that aren't working properly.
It is not unusual for the internal audit team to pay its own way by suggesting money-saving process changes for the dealership. If you are still doing things the way you did five years ago, you may need a fresh look at your procedures.
It is not necessary for the smaller dealership to hire full-time internal audit personnel. Many organizations can provide external outsourcing. You can choose how much and how often, allowing you to maintain both an effective and affordable program.
John A. Davis is a CPA with Dixon Hughes PLLC. He's at 404-575-8910 and [email protected].