Five Policies and Procedures to Implement
You own a dealership and maybe a related finance company (RFC) if you are a BHPH dealer. Over the years, you have instituted many policies, procedures and rules. Your employees may or may not be aware or follow all of your policies, procedures and rules. You may or may not remember to consistently enforce what you think you have in place to help manage your company.
Do you have some type of written policy? If not, how does anyone know what they are expected to abide by? Are they all in your head? It doesn’t matter if you have one or 100 employees. Most people need guidelines and reminders to help them stay within the parameters you have set up for your company.
Being a partial owner of a General Motors and Chrysler dealership and of a software company, as well as an owner and principal with a large national CPA firm, polices and procedures surround me in every way you can imagine. I have to comply with state laws to maintain my CPA license. Our dealership, like yours, must comply with the numerous federal and state laws which seem to require a full-time person just to keep up with them all so that attorneys general, the IRS, and sales and payroll tax auditors stay out of our facilities.
Have you established policies and procedures for your accounting department? Since I am a CPA (certified public accountant) and a CFE (certified fraud examiner), I tend to lean heavily in this direction. Following are some basic policies and procedures you should have for your accounting department to be compliant with good internal accounting controls.
1. Do you have segregation of duties in your office? For example, does the person who collects cash complete your bank deposit? Is the person who completes the bank deposit different from the person who completes the bank reconciliation? One of the problems in many dealerships is there are not enough people to separate the duties correctly to be in compliance with good internal control policies. When you have too few people, you should be reviewing various monthly bank statements, deposit slips, electronic transfers and checks written to ensure you are aware of and approve all the transactions. Bank statements should be sent to your home for review before bringing them into the office for reconciliation.
2. Adjusting journal entries recorded by your office personnel should be reviewed, explained and signed off by the dealer. Adjusting entries are different from original source entries. Original source entries are used to record actual transactions, such as sales invoices, cash receipts, cash disbursements, parts, service and body shop tickets, purchases from vendors, vehicle purchases, etc. Adjusting entries are used by your office personnel to correct original source entries. If there are too many adjusting entries, you will need to find out why your personnel are having so much trouble recording original transactions correctly. Under most circumstances, original transactions should not be recorded as adjusting journal entries.
3. Cash disbursements take on many different forms. Some examples are electronic transfers, petty cash, credit card purchases, actual checks, debit cards, etc. There has been a large increase in the number of electronic transfers both to and from dealership bank accounts. The best way to review these is to log on to your bank account and go to the section showing these types of transactions. Your office may also be keeping a manual log or actual printouts of transfers in a file. If so, make sure all of the transfers on your bank account are accounted for. If not, find out how your staff is keeping up with all of these transactions. There needs to be some documentation for each transaction and a reason it was completed. You should also be able to identify whom the transfers were made to, what they paid for and who authorized it.
Petty cash is one of the most abused accounts in most dealerships. Too many disbursements are made from these accounts. There is normally too little documentation for the transactions. The activity is also not normally recorded correctly as it actually happened, as most people record the activity only when replenishing the account.
Credit card statements should be reviewed each month. Most accounts allow you to view the activity online and also print statements. Whichever method you use, you should be able to match the original receipts from the merchant with the credit card activity.
You should be able to ask for a copy of a paid invoice or other documentation for every check written. A copy of the check should be attached to the paid invoice or other documentation and the amount of the check should match the invoice paid. If a check was written for a floorplan or lien payoff, a copy of the check should also be placed in the car deal jacket.
All debit card transactions should be reviewed. There should be a list of whom, if anyone, has a debit card for your bank account. Any activity generated from this type of transaction should be kept in the bank statement file and have the appropriate documentation attached to it.
4. Cash receipts are normally printed and given to the customer, but most dealerships don’t print a copy for themselves. With archiving offered by most software vendors, the dealership has the ability to reprint the receipt at any time. If the receipt affects a car deal, such as a down payment, a copy of the receipt should be placed in the car deal jacket.
A cash receipt can also be in the form of a credit card transaction. A batch transaction report should be printed every day at the close of business. All the individual receipts should be attached to the batch report.
You should review how all cash is being handled. Who counts it, who makes out the deposit slip, who actually takes the cash to the bank? Find out if someone actually verifies that the amount taken to the bank matches the original deposit slip. The bank receipt should be attached to your copy of the deposit slip and the total amounts should agree with each other.
5. Purchases should be authorized by the appropriate manager. If possible, control the purchases by using signed purchase orders. Expenses are normally better controlled when prior approval is required because the purchase has to be authorized by someone other than the person who wants to buy the service or item. The purchase order should be attached to the actual vendor invoice for verification later.
Do you have any of these policies, procedures and rules instituted at your dealership? If not, why not? Failure to do so will result in non-compliance with good internal accounting controls and put you at risk for inconsistencies and possible problems in your accounting records in the future. Institute them today. Write down how you want certain transactions handled and documented so there are no misunderstandings due to lack of communication with your personnel. Everyone will be better off for it.
Vol. 7, Issue 9