Industry experts predict that manufacturers’ will continue to double-down on service warranty audits. After all, chargebacks are an additional source of revenue that is sorely needed now. 

Every service manager should take special note of this prediction. Here’s why:

• It is the dealer’s responsibility to maintain a record of all warranty work and to substantiate all requests for reimbursement. In the event of a dispute between the dealer and manufacturer, the burden of proof is on the dealer.
• Proper documentation of warranty work falls on the service department, not the accounting office, as is commonly presumed.
• The service manager is responsible for the service department; therefore he/she is ultimately responsible for document management and for training service staff to meet warranty work requirements.
• Service managers can, and have, been fired for chargebacks resulting from a failed service warranty audit.

Every service manager knows that they must keep accurate and complete records. The task is not complicated but commonly lands on the bottom of the priority list. Why? Because the process takes time, organization, and knowledge about retention requirements. 

What can a service manager do? Be proactive and prevent chargebacks with the following techniques and strategies.

1. Know document retention policies for your state and OEM.

 Document retention guidelines are not uniform across states and manufacturers. Research what is required in your specific state and by your specific OEM(s). For example, so-called electronic audits are now commonplace for some OEMs but not for others. How and where you store documents can also vary by state and OEM. Not sure what’s required? Contact your state auto association or a CPA firm that has expertise in warranty parts and labor reimbursement analysis.

2. Manage your document retention workflow.

Never assume that your staff knows what to do when it comes to warranty job card compliance. Job cards require the completion of several checkpoints. If one or more checkpoints are violated, the claim could result in a debit during an audit. Define a process for how the job card flows between the advisor, technician, warranty administrator, service manager, and cashier.

Conduct a review monthly or bi-monthly to make sure the process is being followed, and employees know who is ultimately responsible for checking each point. Reviews and training are especially important when you consider the turnover rate for service advisors alone is nearly 50 percent, according to the 2018 NADA Workforce Study.

Consider scanning and archiving documents online. Online records are easy to search and cannot be altered by employees. Exception reporting also makes it easy to track documents so you know with certainty what has been archived and what hasn’t. Review this list with advisors every week to locate and scan missing documents before auditors come knocking.

3. Review your warranty processing.

You must have trust and confidence in your warranty administrator. Get to know this person. Is he/she a seasoned veteran or a rookie who may need more training? Is he/she comfortable with your OEM requirements and paperwork? Is this person organized? A desk covered in papers may indicate it’s time to start the search for someone new.

Another option is to hire a third-party warranty processing company. This can save you time and money, but weigh the cost-benefit ratio carefully. A low reimbursement rate from an OEM could mean you’ll be paying more for processing than you get in reimbursements. Conversely, if you’re a large group with multiple OEMs and your warranty administrator can barely keep up, a third-party processor could significantly increase your reimbursement dollars.

4. Pay attention to the details.

It’s not usually the absence of documents that results in chargebacks; it’s the little things. As the old saying goes: “You must inspect what you expect.” For that reason, be aware of common violations that result in chargebacks, including: lack of technician time punches; missing customer signature; missing service manager signature on internal repair or over-the-phone customer-authorized repairs; poor technician documentation; etc. Of course, all auditors and audits are not the same. Each OEM may interpret and enforce policies differently. Contact your OEM for a list of audit requirements.

As a service manager, what you don’t know can hurt you. Service department documentation is NOT handled by the accounting office. An office manager or controller will rarely lose their job if they fail an audit, but a service manager will. Take ownership over the process to reduce chargebacks and gain job security.