Dealer Audits—Can They Strike Twice?
Remember the old saying “lightning never strikes twice in the same place”? Well, apparently that's not true for mother nature, or for auditors. The OEM sales auditors are returning to audit the very same dealerships again. And, in a relatively short time frame; usually 12-18 months after the first audit, or the last audit if you’re one of those dealerships audited yearly or on a regular basis.
Why would the auditors return to the same dealerships when there are so many others to audit? There are usually three reasons:
1) To determine if corrective actions were implemented and to see if incentives are in compliance since the last audit
2) More or new “red flags” have surfaced signaling potential problems (again)
3) To debit more dollars—it’s still about the money (and the message)
So who are the lucky ones? Dealerships that had huge charge-backs and/or serious compliance issues, e.g. misrepresentation (a.k.a. Fraud), delivery reporting discrepancies, exported vehicles/sale for resale, ineligible customers/deliveries, excessive Doc Fees and numerous missing documentation, etc. These compliance issues can also put you on the auditors ‘radar’ for some time. There may not be an exact dollar threshold—and other determining factors could drive that repeat audit. Such things as the size of your dealership in proportion to their earlier findings, your interaction with the auditor(s), or even an aloof attitude or non-commitment by the dealer or management team to cooperate or correct issues could just as easily be a reason.
If you are a likely repeat audit candidate, or even if you’re not, here are several suggestions:
a) Review your prior sales audit report to refresh yourself with all the issues.
b) Ensure training was done to correct problems and specific processes/controls were implemented to eliminate reoccurrence of non-compliances.
c) Conduct a thorough in-house incentives compliance review, starting at your last audit’s review end-date (stated in your sales audit report) up to the current date.
d) Assign this task to the employee(s) most knowledgeable with incentives, program rules and required documentation. This is very time-consuming; get outside expert help if needed.
e) Based on the results, secure, complete, and/or correct what’s needed.
You might be surprised to know that in many instances the second audit has yielded a large charge-back again; some of the same bad practices and non-compliance issues. It is as if no lessons were learned, no changes were implemented, and the financial impact was not taken seriously. That’s a result of poor management, no internal controls or processes and a disregard for losing unnecessary money. But it does not have to be that way! It is possible to get a minimal or even a zero-dollar debit for a repeat audit. How? It requires continuous training, implementing solid processes, and most importantly, serious and continued oversight and regular compliance reviews.
Staying on top of it all will help you weather the next storm so you don’t get “struck” again.
Sherralyn Peterson, automotive incentive specialist, with 30 years of automotive experience, helps dealerships prepare for sales audits, conducts compliance reviews, reconciles receivable schedules, performs staff training, and resolves incentives issues. For more information, call 312-310-8380, email firstname.lastname@example.org or visit www.sherralynpeterson.com.