Focus on what counts

Internal Controls: Is Your Dealership Losing Money You Don't Know About?

July 13, 2017
view all archive

Internal Controls: Is Your Dealership Losing Money You Don't Know About?

If you are a dealership owner, there are a multitude of things that can keep you up at night – of the many things that have the potential to do so, there is one that seems to be the most prevalent - Can I trust that the people who work for me are looking out for my business? 

Numerous versions of this familiar question live in the penthouse suite in the heads of owners, managers, and all other corporate leaders, across many industries.  How could it not? As a business owner, a significant part of your job involves delegating to people you trust so you can focus on the business, as opposed to working in it. While this is true throughout all industries, there are some internal controls specific to the automotive retail industry that can help you sleep better at night.  Here are some for you to consider: 

Monthly Vendor & Expense Review

One of the most common ways to make money “disappear” in the dealership business is through the use of fictitious vendors.  Depending on the size of your business, you can have hundreds, or even thousands of vendors that you pay at any particular time.  Getting a clear understanding of who you are paying, and why, can protect you from misuse of funds. 

A DMS system will provide a trend analysis report for the expenses going through your business.  Looking at expense trends can help you identify outliers that may not be reasonably justified, and prove to be worth looking into.     

Manual Journal Entry Approval

Most DMS systems do a good job of being automated, and require little amounts of manual journal entries.  If you do not understand the accounting function, seek experts to help you identify inappropriate existing manual journal entries within your DMS. A quality internal control would be mandating approval of all manual journal entries by two people in management roles who understand the accounting function. 

Mandatory Vacation Policies

When employees are burned out, they are not thinking straight. What starts as taking a few office supplies can lead to riskier behaviors, like taking petty cash, etc. Be mindful of employees vacation time and other benefits - employees are less likely to take from you when they feel they are looked after. In pressing situations, if an employee of yours is being trusted with important responsibilities, but you feel that they are not meeting their trust commitment, a mandatory vacation policy can bubble up potential issues while they are away. If someone has something to hide, they probably won’t willingly take a vacation so that they can make sure that whatever they are trying to hide is not revealed.    

Rotate Desks Quarterly in Accounting

Certain accounting functions in automotive dealerships can become somewhat monotonous, after a while.  Employees learn their job, and go through the “rinse and repeat” cycle for the remainder of their employment.  The longer an employee stays in one function (ex: payables) the more time they have to figure out how to take shortcuts, or take advantage of a riskier opportunity.  Having the members of your accounting team rotate functions not only helps the employees with professional development by learning different skill sets, it also protects your business from any one person having complete control over a specific function.  

These are just a few of the quality internal controls that you can implement into your dealership operations to protect your business. Putting in place effective business operations processes will not only deter people from hurting you and your business, but it will help you sleep better.  Ask your professional accounting adviser to discuss internal controls, specific to your dealership that can further protect your business.