By Phil Villegas
In continuing my theme of focusing on the fundamentals, I thought I’d focus on one of the most basic internal controls that is overlooked or not taken as seriously as it should, and that is the taking of vehicle physical inventories. For most dealerships this is the single largest asset on the books, and unlike real estate and Blue Sky, these asset can actually be easily moved. Time and time again when we inspect dealership’s physical inventory counts we are left concerned with the thoroughness and seriousness with which they are completed. Many stores will not complete new car inventories since they will say the floorplan company does that or many accounting offices will simply say the sales department does that.
In our opinion, the accounting department is not doing its job if it does not take full ownership of the vehicle inventory process. Deferring this key control to a floor plan company or the sales department is not safeguarding the dealership’s assets. Our recommendations for proper vehicle inventories are the following:
1. Take an inventory with a blank sheet, write down or scan the VIN on every vehicle on the lot. Do not simply print out a current inventory and look for those vehicles.
2. Identify the following:
a. Cars on books not on lot
b. Cars on lot not on books
3. Document all vehicle exceptions and causes.
This basic internal control can uncover a myriad of issues from people driving unauthorized demos, unrecorded used vehicle purchases and wholesales, sales people off-lining cars to age them, unreported damaged or stolen vehicles, etc.