1
Top Questions You Should Ask
Your CFO or Controller
Jonathan Wilke, CPA, CIA
Partner
Dixon Hughes Goodman Dealer Services Group Fort Worth, TX
817-276-4127
Adam Lawyer, CPA/ABV/CFF
Senior Manager
Dixon Hughes Goodman Dealer Services Group Fort Worth, TX
817.276.4131
Key Takeaways
After attending this workshop you will be better able to
identify the:
• Importance of financial accountability • Significant risks that face most dealers
• Key accountability questions to ask your CFO/controller
Why Accountability Is Important
• Regardless of the type of accounting manager you
have, they must be held accountable
• Dealers/executives are spending less time in their
stores
• Multiple locations
• Competing time demands
• Significant amount of net worth tied up in stores
• Average 2013 net worth was $3.2 million*
* 2014 NADA DATA
Always Be Watching
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Top Questions to Ask Your
CFO or Controller
•
What are you doing to protect this dealership from
fraud?
•
Where is our cash?
•
What are our greatest financial risks?
•
How are we monitoring compliance with
regulations?
Fraud by the Numbers
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Fraud Financial Loss by Employee*
1)
Executive - $500,000
2)
Manager - $130,000
3)
Employee - $75,000
Fraud Frequency by Employee*
1)
Employee – 42%
2)
Manager – 36%
3)
Owner/Executive – 19%
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Why Should You Care?
• External audits are among the least effective controls in
combating occupational fraud.
• Fraud detected by external audit – three percent*
• Fraud detected by accident – seven percent by accident*
• Data monitoring, surprise audits, a dedicated fraud
department, or a fraud risk assessment can identify
frauds 50 percent quicker.*
• Vast majority of fraudsters are first-time offenders*
What Are You Doing to Protect the
Dealership From Fraud?
• Where are our greatest risks for fraud?
• What are our key controls to prevent/detect fraud? • How do we know those controls are functioning?
Criminals
Fraudsters
How to Prevent Fraud?
• Tone at the top
• Inspect
• Pay attention
• Background checks
• Segregate duties
Tone at the Top
• Set a standard for excellence
• Write an ethics policy
• Share the ethics policy
• ZERO TOLERENCE
Inspect
• Inspect what you expect
• Regular inspections of information
• Deal file testing • Transaction testing
• Daily bank reconciliations • Internal audits
Pay Attention
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Is this your employee parking lot?
Pay Attention
• Be aware of incentives or opportunities for rationalization
• Recent financial struggles
• Health struggles, self or family, etc.
• Anyone living above their means
• Nicer home than you would expect • Nicer clothes, jewelry, etc.
• Expensive, frequent vacations, etc. • Sudden uptick in spending
• Be aware of privacy laws
Background Checks
• EVERY TIME
• Assuming your state allows such checks, consult with legal counsel as necessary
• Actually read the results
• Don’t justify hiring someone you shouldn’t
Segregation of Duties
Segregation of Duties
• Four main functions
• Authorization • Custody
• Record keeping • Reconciliation
• Duties should not overlap
• Job rotation
• Regular vacations
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Where Is Our CASH?
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• Common question:
• “I made $$$ this year, where is all my cash?”
• Key differences between “income and cash”
• Increase/decrease in working capital • Increase/decrease in debt
• Distributions
• “Non-cash” charges - Depreciation
- Allowance for bad debt - Reserves
• Controller/CFO should prepare a cash-flow
statement regularly
•
Frozen Capital
• “Assets that are difficult to turn into cash, such as obsolete parts, over-aged vehicle inventories, past due accounts receivable, or excessive equipment.” – Ford Accounting Manual
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•
Frozen capital based on industry guides or business
needs
• New vehicles > 120 days • Used vehicles > 45 days • Parts inventories > 60 days • Receivables > 90 days
• CIT > 30 days
•
How do you determine your “standard?”
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• Many dealers have excess cash – what’s the best use?
• Pay down floor plan
• Ask lender to increase amount allowed in CMA offset • Even small increases help
- $500,000 x 4.25% = $21,250/year
• Look for items that offer pre-payment discounts - Sales tax, some states as high as 15% discount/year
• Treasury management
• Sweep accounts
• Outside investments
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How Can We Better Use
Excess Capital?
What Are Our Greatest
Financial Risks?
What Are Our Greatest
Financial Risks?
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• Rising interest rates
• Most analysts expect steady rise in rates over next two to three years
• How will rise in rates affect our cost of capital? • How can we best mitigate those increasing costs?
- Refinance now at lower rates - Hedging
- Plan to pay down debt/flooring
• Cost of insurance
•
Highly regulated industry
• DOE, DOJ, DOL, EPA, FTC, OCC, OFAC, CFPB, OSHA, OCC, NHTSA, FinCEN, FRB, FCC, EEOC, etc. etc. etc.
•
NADA and ATD Federal Regulatory Compliance Chart
• 39-page guide on many applicable federal regulations for car and truck dealers
• For information on NADA’s CFPB Compliance Guide, please contact Paul Metrey at 703-827-6868
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How Are We Monitoring
How Are We Monitoring
Compliance With Regulations?
•
How do we test deal files for compliance?
• Deal file checklist
• Regular testing rotation • Sample selection
• Regular findings report
•
Monitoring our F&I processes
• Rate spread caps • F&I Menus
• Testing rotation
• Snow Video
•
Manufacturer programs
• Compliance with incentives rules • Compliance with warranty rules
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How Are We Monitoring
Questions?
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Top Questions You Should Ask
Your CFO or Controller
Jonathan Wilke, CPA, CIA
Audit Partner
Dixon Hughes Goodman Fort Worth, TX
817-276-4127
Adam Lawyer, CPA, ABV, CFF
Senior Audit Manager Dixon Hughes Goodman Fort Worth, TX
817-276-4131
Please visit the NADA University Online booth in the Expo Hall for information on accessing electronic versions of this slide presentation
and the accompanying handout material, and to order the workshop video-recording.
