A dealership is a complex organization with a lot of moving parts. With only so many hours in a day, an Owner or GM has to trust the CFO & Controller to handle financials. But as the saying goes: absolute power can corrupt absolutely. Who’s watching the watchman at your dealership?

Of course, I’m not saying that every Controller is corrupt. Far from it. What I’m saying is that a Controller should never perform their job without oversight. Mistakes and temptation grow in a vacuum. A system of checks and balances can stop problems or mistakes before they affect your bottom line. There are at least five things every Owner and GM must do regularly to stay on top of financials.

1. Monitor cash payments.

A cash payment is way too easy to slip into a pocket. True, embezzlement is at the far end of the extreme. It’s more likely that a sales manager puts aside a deposit and then forgets to take it to the finance office. Whatever the circumstances, the Owner or GM must keep a close eye on the handling of cash. Mandate the process for collecting and issuing payments is documented and adhered to.

Homework Assignment:

• Request a weekly DMS report on check payments over a threshold, such as $100. This will eliminate any title checks that are written. You can also start at $0 and work your way up to establish a threshold.
• Validate that these vendors are on your active Vendor Report and that you have a valid W9 form completed for each. 

2. Stop overpaying vendors.

You could be paying more for the same service as another dealer in your market. If you suspect you’re being overcharged, speak with your 20 Group and compare pricing. The more worrisome concern is ensuring you aren’t paying fake vendors.

To avoid fraud, overpayment, and duplication of services, audit all your vendors for ROI twice a year. Pull a report from your check register or run a DMS vendor report. Maintain better control over the process by authorizing only one or two staff members to sign vendor contracts. A third-party vendor management platform, that makes it easy to retrieve and review contracts with only a few keystrokes, can streamline vendor management and save you time and money. 

Homework Assignment:

• Request the listing of all vendors paid in the past 12 months.
• Review the ROI of the vendor relationship.
• Compare the dollar amount to previous years, as well as confirm the pricing matches the contract signed.
• Check that the dealership expense is recorded to the correct Expense account in the books.
• Review the last three invoices for accuracy.

3. Keep an eye on floorplans.

Selling cars out of trust is an old story; but not paying off a floorplan debt immediately after a sale is bank fraud and could result in a hefty fine and even prison time. An outside pair of eyes is recommended for reconciling floorplans. A third-party service can receive data directly from the lender and crosscheck it with dealership accounting records to ensure floorplan reporting consistency.

Homework Assignment:

• Perform your own spot check of Vehicles on floorplan. Request a Floorplan schedule from Accounting that lists out all vehicles with VIN.  Have a 3^rd party touch each vehicle to ensure you still have it in inventory.
• Any balance that is less than $10,000 on a new vehicle schedule should be investigated every month with an explanation on why it exists on the floorplan.
• Review the Used vehicle floorplan schedule for any sold units that still have a balance. This could be incorrectly posted Internal Repairs that showed up after the vehicle was sold.

4. Perform a regular review of your scheduled accounts.

A monthly or quarterly review of all scheduled accounts will save time during your accountant’s year-end fieldwork and help eliminate potential problems moving forward. Three major areas where balance sheet accounts may not be scheduled and/or detailed are: write-offs, sold inventory, and contracts-in-transit.

All write-offs (customer and factory) should be reviewed and declared monthly so as not to disproportionately affect December income with bad debts incurred during the year but not written off.

Sold inventory schedules should also be reviewed monthly to clear out aged balances and correctly allocate each salesperson’s cost of sales to the month of the sale. A dealer will eat an unwelcomed COGS charge if sales managers are not charged on the cost for the gross amount on a deal.

Finally, commit to weekly reconciliations of the contracts-in-transit ledger. This helps clean up any unpaid deposits before the end-of-the-year and catches mistakes in the deal posting process.

Homework Assignment:

• Perform your own spot check to ensure all three areas are scheduled and/or detailed in your computer system.
• Require that any General Journal entry to a COGS account has an explanation.
• Mandate that all COGS postings carry the Sales Manager or General Manager signature. For future awareness when reviewing postings, I recommend the use of signatory initials in the description (Example, TP (Travis Peterson)/Internal Vehicle RO Ticket #1234).

5. Pay attention to irregularities in journal postings

Irregularities can be found in general journal entries, cash disbursements to non-vendors, reconciliation of void checks, and year-end bank reconciliation statements. A final year-end review of the general journal entries is recommended. Most importantly, ensure that checking accounts are not showing any general ledger entries documenting cash taken out. Cash should only be released through a cash receipt or check transaction. Any other method could indicate fraud.  Use a third-party tool to analyze your financial standing for any adjustments over $1,000 in COGS, Asset, or Liability accounts, to ensure payments or postings are placed correctly.  

Homework Assignment:

• Perform your own spot check to ensure checking accounts are not showing any general ledger entries documenting cash taken out.
• Enlist your external CPA as a third-eye during the year to check on any irregularities, or run a report through your third-party document management platform.

The watchman, or Controller, has a lot of power and responsibility in the dealership. Don’t expect them to work in a vacuum where mistakes and temptation can hide and grow. Every GM or Owner must do these five things on a regular basis to stay on top of financials, set up the Controller for success, and help their dealership thrive.