The importance of accurate monthly financial statements cannot be understated. It is also important for the officer manager to meet with the dealer and/or general manager each month to discuss any issues prior to the close. Time needs to be set aside each month to review the monthly statements and bring to light any items that require follow up.
Generally, 2012 has been a strong year financially for dealers. We find more accounting errors and improprieties in good times because as dealers focus on growing sales, the accounting department becomes a low priority. There is no excuse for a dealership to have “sloppy” accounting records.
Often times the accounting department will rush to produce the monthly statement without reviewing each balance sheet schedule and reconciliation. This results in the production of monthly statements that are not accurate. You cannot make proper management decisions in your store unless the data on your financial statements is accurate.
I will give you an example of “sloppy” recordkeeping. We were recently engaged by a new dealer client to review their accounting records. I examined the monthly statement and noticed that the finance reserve balance on the statement was $400,000. Without looking at any detail, I asked the dealer if the store was involved in any F & I programs that were out of the ordinary. The answer was no and he suspected the total F & I balance was something less than $50,000. Upon further investigation, it was found that the finance reserve accounts had not been adjusted for several years and the proper balance was $25,000. I also noted that the parts inventory balance seemed high. I asked the dealer what the balance was and he explained that they carried approximately $200,000 of parts. The figure on the financial statement was $375,000. An inventory later in the year, confirmed that the $200,000 figure was correct. There were several other accounts that required adjustment which lowered the company’s net worth by $800,000. Unfortunately, these adjustments put the dealer out of compliance with their manufacturer working capital requirements and those of the floor plan bank. The dealer also paid tax on $800,000 in phantom income in prior years. This is an extreme example, but a real one.
We suggest that dealers consider implementing the “Office Manager Monthly Checklist” in their stores. The checklist is compiled each month by the office manager and reviewed with the dealer or general manager. The office manager affirms that they have reconciled and reviewed all balance sheet accounts and identifies problem areas that need to be addressed with the dealer.
In a few weeks, I will provide you with a dealer/general manager checklist. This checklist will outline some monthly and quarterly tasks for the dealer/general manager to perform to enhance the internal controls in your store.
If you have any dealership management questions, please contact Paul McGovern at 800-849-6022 or pmcgovern@downeycocpa.com.
