Lax policies and unauthorized charges, discounts and freebies could be nipping away at your bottom line.
I have been known to ask dealers, “Do you allow your employees to put their hands in your pants pockets?” The most common response is “Are you nuts?” or an emphatic “No way!” In fact, many dealers do employ pickpockets, and in many cases, neither party realizes it.
A pickpocket is a person who takes money or valuables from someone without alerting the victim — or at least not until it’s too late. Some dealership pickpockets commit their crimes intentionally; others are simply following poor policies. Before you say “Not at my store,” ask yourself the following questions:
1. Are Employees Required to Complete Purchase Orders?
If you allow managers and staff to make purchases without completing purchase orders, it’s equivalent to letting them reach in your pocket and take as much money as they want. This is especially true if your store operates primarily on a cash-on-delivery basis rather than utilizing vendor credit. COD orders are often completed and paid for in a too short of a window for you to notice or question the purchase.
Furthermore, if you require purchase orders but allow the same individual to match delivery, invoices and authorize payments, they still have access to your pockets. The most accountable solution is to limit the number of individuals who can issue purchase orders. Next, make sure a different person is matching packing slips and invoices to purchase orders for payments. Finally, limit the number of individuals who can make those payments.
2. Can Numerous Employees Sign Checks or Make Electronic Transactions?
You know as well as I do that no one will watch your money as closely as you will. As the number of authorized check signers and account users increases, so does the opportunity for misappropriation of your funds.
More and more transactions are made electronically today. It’s not uncommon for a dealership bank statement to be 50, 100 or even 200 pages long. To complicate matters, many entries lack key transactional details. If signers do not have a vested interested in the store, they won’t watch the dollars leaving like you do.
In short, you must make sure you are reviewing your bank statement every month and questioning unusual transactions. And once again, limit the number of people who are authorized to spend your money.
3. Can Part Pricing Be Overridden or Discounted?
Discounting parts is like a slow leak: You don’t really notice it until your tire goes flat. In the parts department, your gross profits could be losing air. So who is discounting your parts, and who is benefiting from it? You must review your parts gross profit on a regular basis and examine price overrides to ensure your staff isn’t overdiscounting
4. Are Your Service Tickets Closed to Coupons, Discounts or Other Internal Accounts?
It’s one thing to run a promotion and monitor its performance. It’s quite another to review your trial balance, service department or parts department reports and see dollars being written off that were never authorized.
The most typical scenario is a coupon that finishes its planned run but is never removed from the system. It becomes too easy to continue giving it to those who shouldn’t have it. Most systems will even allow you to identify who is doing the discounting and where they are charging it. Have you reviewed these reports lately?
5. Do Employees Get Discounts You Never Approved?
Many employees enjoy free or heavily discounted services from your store. But unless you approve them in advance, you may have created two pickpockets: the employee who received the service and the one who gave it away. To avoid this issue, you must create and enforce a policy that covers parts, service and even vehicle purchases.
6. Can Your Parts Be Returned for Cash?
If your shop orders a non-inventoried (a.k.a. “emergency”) part and it turns out to be the wrong one, what happens? The right part is then ordered, and it may come from a different supplier because the first supplier didn’t have it. So a runner goes to get the right part and the repair is completed.
But wait. What happens to the wrong part?
Since it’s not stocked in inventory, it’s pretty easy for that part to leave the dealership and be returned for cash, and that cash just might not make it back to you. Make sure all your vendors know that all part returns must be handled by providing credit on your account or a check payable to your dealership. Do not allow your employees to accept cash for any parts returns, and store your parts in a secure location with very limited access.
7. Can Your Sales Team Authorize Free Repairs?
I have seen dealers with crazy amounts charged to policy because their sales pros were too afraid to ask customers to pay for repairs after the sale. Others will offer to split the bill or say the dealership will cover it. If you aren’t comfortable with that, set firm limits on policy authorization in dollar amounts and who can authorize them. I suggest you limit authorizations to sales management and make them accountable through their compensation plan.
Another reason policy gets out of control is when the sales team fails to set up a “We-Owe” at the time of sale because they don’t want the gross deduction. They hope the customer will just forget about the item in question. They don’t, and then the sales department authorizes the service after the sale in the name of customer satisfaction.
Take a look at last month’s sales policy account and compare the charges to that month’s sales. How many of them should have been set up as We-Owes and deducted from gross profit up front? I suggest a We-Owe on every deal, including those where nothing is owed, and having the customer sign it. It certainly helps after the sale when the customer returns to the store.
You wouldn’t want a pickpocket rummaging through your pockets, so why let your employees dip into your profits? By firming up your policies and procedures, you can protect both.
Harlene Doane is COO of DealerStrong and co-organizer of the annual Industry Summit. She is the former editor of Auto Dealer Monthly and has expertise in dealership accounting and operations. HDoane@AutoDealerMonthly.com