New Normal = New Risks
By Marilou C. Vroman, CPA, CFE
In strange times, people do strange things.
The last six months have been nothing short of challenging, with economic uncertainty, health, and financial concerns in the forefront of many people’s thoughts. As we have navigated the choppy waters of the pandemic, we have observed a shift in the nature of operational risks that are surfacing, and here is why:
With so much focus on the external and highly necessary precautions towards Covid-19 in the interest of employee and customer safety, the focus on internal risks has by default become deprioritized. Not because the oversight and control over these risks is less important, but rather the amount of resources dedicated to protecting the human side of the business can leave blind spots, which left unattended, may adversely impact the internal health of the dealership.
In auditing the period of time during the pandemic, we have observed a shift in the types and frequency of anomalies that are observed in dealerships. These anomalies are often explained by management in one form or another as “due to Covid.” In other words, what we saw was allowed to happen due to personnel changes, whether permanent headcount reductions, or temporary impediments due to illness, remote office environments, departmental shutdowns, or mandatory quarantines. The Covid explanation was not surprising, but what was surprising was how the risks we found were otherwise unknown, undetected, or deemed irrelevant by management.
Some risk areas which have become more pervasive recent months are:
· Documents not properly executed and lacking required signatures.
· Vehicle physical inventories and floorplan audits not performed.
· Open repair orders for cars released without collecting payment.
· Uncollected employee receivables from sales transactions or advances.
· Extra labor hours flagged to technicians without a labor sale or valid explanation.
· Deterioration of accounting schedules and delayed account reconciliations.
· Credit cards or deferred customer down payments accepted on sub-prime financing.
· Verbal authorizations accepted in lieu of documented management approvals.
· Compensation adjustments/overrides unsupported by or inconsistent with pay plan on file.
The above items can occur within a dealership at any time, and certainly without the influence of a pandemic. Even the best run dealerships with strong internal control environments are at risk since these types of issues may not be immediately apparent or detected with the focus on conducting business safely and effectively in a challenging environment. Lack of management awareness of emerging internal risks can be dangerous if allowed to become systemic.
We encourage dealers to continue the strong focus on protecting the health of all who come in contact with the dealership. Once the external protective safety measures are well in place, take some time to look inward to ensure the internal health of the dealership is also being protected.