Posted on November 9, 2020 by Travis Peterson
How and Why to Make Your CPA Your Most Important Relationship
A store may be missing over $200,000. Or $745,000. Or as much as $4.1 million. These are all real amounts embezzled from dealerships by employees. Most embezzle for years before they are caught. In one case, an employee was only caught because she was on vacation when a company called the dealership to question a large check she had written.
Up to 51 percent of dealers have been victims of employee embezzlement and theft or know someone who has, according to auditing research from Reynolds and Reynolds.
Would you know if your dealership was missing money? Most don’t. Various reasons make dealerships vulnerable to internal fraud, including high cash flows, limited internal controls, and departments with insular environments. Also, outside auditors and CPAs have limited to no internal knowledge of operations.
It is easier for fraud to go undetected when your dealership is profitable. That’s when you’re least likely to scrutinize financial records. Many dealers cite lack of resources, time, or employees to detect and prevent fraud.
But virtually every dealer has a CPA or CPA firm. That person can be your second pair of eyes. When you consider the money you could lose due to internal fraud, the cost of paying your CPA is negligible. Your CPA should be an extension of your business, instead of just a once-a-year transaction to complete your year-end audit.
Invite your CPA to learn about your internal operations and they can be proactive in conducting financial analysis, preventing fraud, and uncovering financial mistakes that cost you money. Empower your CPA to help your business with the following initiatives:
Give them the right tools. Historically, dealership documents were stored as paper files, on CDs, or on thumb drives. While digital copies were better than paper, it still took a lot of time and effort to find and analyze records. Switching to an online document management platform allows you to give your CPA immediate access. Online document management makes it easy to search for and access all of your dealership documents. By storing documents outside of your DMS, your CPA does not have to be an expert in using your DMS and he/she can access data at any time without assistance from dealership staff.
This kind of access has been invaluable for Arnold Creekmore Sr. and Jr., who’s CPA firm in Florida has been helping dealer clients since 1969. “With online documentation, we can easily download data to an Excel file and it saves a lot of time,” explains Creekmore Jr. “Because it’s not time-consuming, we can do more analysis and help dealers make good management decisions.” He points out that he and his father always prefer a dealer-client use a third-party document management platform because it ensures dealership data is accessible even after a DMS change. “When you have to amend a tax return or ask an audit question and you’ve switched your DMS and not converted to online document management, how am I going to find that data? It would be a nightmare,” he says.
Touch base regularly. It’s standard for many dealerships to sit down with their CPA only at year-end. This is a huge missed opportunity. Regular check-ins and continued access to your documents gives your CPA the power to be your second set of eyes and to nip problems in the bud. It’s smart to have a third-party performing reconciliation so that the same person isn’t handling all of the accounting all of the time. When one person has total control over your books he/she may miss errors or be tempted to skim money off the top. As Creekmore Jr. explains, “Having another pair of eyes on the books helps everyone out. Internal control is the best way to prevent fraud. You want to catch it early on before it gets big.”
Provide access to vendor agreements. Access to vendor agreements allows your CPA to properly capitalize expenses throughout the year. He or she can also perform vendor reconciliations to find errors, fraud, and poor management decisions that can cost you thousands. Consider implementing a vendor document storage solution to help stay on top of contract terms and conditions. Your CPA can monitor this solution on a regular basis to control costs, avoid accidental renewals, and transition to new vendors when a contract ends or business needs change.
Proactively look at books to reduce write-offs. A CPA proactively looking at books can help you see, understand, and eliminate costly write-offs. “We can look at schedules and start asking questions,” says Creekmore Jr. “For example, let’s say a dealership grosses $80 million in sales, nets $1 million but then has to write-off $150k of that profit. A lot of dealers will just do it without asking what are we writing off. Is it Receivables? Obsolete parts inventory? A good CPA will do an analysis, get the information to management, and help them stop mistakes to significantly reduce and even eliminate write-offs.”
Encourage fraud investigation & prevention. According to a report by the Association of Certified Fraud Examiners (ACFE), the average time to identify theft or fraud is 18 months after the initial event. Approximately 58 percent of these cases do not lead to recovery for the dealership. Encouraging your CPA to regularly inspect for fraud can stop issues before they become a problem. Areas to investigate include unknown vendors, payments over $10,000, disproportionate departmental spending, month-over-month spending trends, improper rebates, false checks, and reconciliation of parts since it is not unheard of for employees to steal parts and sell them outside of the dealership.
The CPA relationship shouldn’t be a single occurrence to “get the year closed.” Dealers need to have two close third-party advisors: their lawyer and their CPA. Enable your CPA to be continually proactive throughout the year to uncover money saving opportunities, protect against fraud, and free-up employees to focus on higher ROI activities.