Posted on April 30, 2021 by Travis Peterson
It has been about 5 years since I worked as a controller in a dealership, and many things have changed in the auto industry since then. One thing I am surprised to see has not changed is the lack of designated compliance officers. We didn’t have one then, and most dealerships still don’t have one today.
Compliance officers can protect dealerships from liabilities and hefty fines. Yet, this position is rare. Only 14 compliance officers were accounted for in the NADA 2018 Dealership Workforce Study, according to ESI Trends, a Largo, Fla., consulting firm that conducts the study.
While this data is a few years old, with the pandemic, it most likely hasn’t improved, and current numbers could well be even lower.
The auto retail business is one of the most regulated in the country and yet, the compliance officer post is largely assumed to be a secondary job responsibility. In fact, it is generally tacked on as a formality to an overtaxed position.
This is a huge risk. If policies for finance, marketing, or sales do not meet federal and state regulations, your dealership could be in for huge penalties.
I’d argue the risk is even higher now. The abnormal market created by COVID-19 has pushed more consumers to research and purchase vehicles online. As a result, the risks of identity theft and fraud have risen dramatically. Ignoring the red flags of identity theft – or unintentionally violating them – can result in fines up to $3,500 per violation.
You also have to protect your dealership from carelessness. Leaving sensitive customer paperwork – like a photocopy of a driver’s license – out in plain sight can result in fines as high as $11,000 in some states. Failing to maintain your dealership’s banking license can result in a 90-day license suspension, effectively paralyzing your sales.
As dealerships across the country regain momentum, rethink hiring, and begin to bring staff back, now is the time to prioritize the compliance officer position. This person can ensure the protection of your bottom-line, legal liability, and brand reputation.
A good candidate may or may not have dealership experience, but a background in accounting and/or finance should be a priority. But, you don’t want just a numbers person. An effective compliance officer must also be able to form relationships and trust with employees at all levels of your dealership.
This is important because it falls to the compliance officer to explain the motives and reasoning behind why something can or cannot happen. Once employees understand the “why,” they are less resistant to change and more likely to follow proper policies.
There will be pushback. Your employees may feel the compliance officer is there to make their jobs harder, when in actuality, he or she is protecting managers’ jobs and the rest of your dealership. Top-down support can help break-down resistance.
Your senior leaders should create clear channels of communication between the compliance officer and the rest of the dealer group. They should support employee trainings on a regular basis, and defer to the compliance officer in instances of employee pushback.
Part of setting a compliance officer up for success is greenlighting the right tools and third-party partners. For example, an electronic document management solution makes it easy and fast to retrieve and review deal jackets flagged by compliance software. It also helps with overall compliance since customer information is safeguarded in the cloud instead of in overflowing file cabinets or document boxes. Third-party compliance partners help the compliance officer stay on top of issues and changing regulations before there’s a problem.
The responsibilities of the compliance officer may differ from dealership to dealership, but in general daily tasks include walking the floor to ensure no papers with customer information are left lying on desks, prepping/maintaining safety inspection stickers and FTC Buyer Guide postings, staying up to date with state licensing requirements, and performing regular parts and service audits.
The compliance officer also evaluates third-party vendors responsible for maintaining information technology, banking information, and customer data, to ensure ongoing compliance. An electronic document management platform with contract query by vendor and comparison capabilities is helpful here as it allows this task to be done with a few keystrokes, instead of digging through paper files.
As your dealership regains momentum and you think about hiring again, consider adding a dedicated compliance officer to your team. Don’t find out after the fact about infractions and pay fines, or take a hit to the brand you’ve spent years building. Invest in compliance today and protect your business far into the future.