Are Your Employees Pickpocketing Profits?

May 7, 2015

Are Your Employees Pickpocketing Profits?

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Are Your Employees Pickpocketing Your Profits?pickpocketing profits

Many dealers have employees who are the equivalent of pickpockets and many of the pickpockets are working hard at taking money from the dealer’s profits.  Some are intentional about it and some are just taking advantage of YOUR poor policies and procedures because it’s easy. A pickpocket is a person who takes money or other valuables from someone without the theft being noticed at the time.

If I ask a dealer, “Do you allow your employees to put their hands in your pants pocket?” I get a look of “are you nuts” and an emphatic “no way!” That’s when the conversation gets very interesting.

Before you say, “that is not me!” let’s see if any of this happens in your store:

  1. Employees are able to make purchases without purchase orders

If you allow employees to make purchases without purchase orders, it’s equivalent to letting them reach in your pocket and take as much money as they want. The amount of money they take is often even higher if your store operates primarily on a COD basis instead of utilizing vendor credit because items are often ordered and paid for in a too short of a window for you to notice or question the purchase.

Even if you require purchase orders, but allow the same individual to match delivery, invoices and authorize payments they still have access to your pockets. The most accountable solution is to limit the number of individuals who can issue purchase orders, then make sure a different person is matching packing slips and invoices to purchase orders for payments and limit the number of individuals who can make payments.

  1. Numerous employees are able to sign checks or make electronic bank transactions

No one will watch your money as much as you will. As the number of signers or those with access to your banking increases so does the opportunity for misappropriation of your money. More and more transactions are made electronically today. It’s not uncommon for a dealership bank statement to be 50, 100 or even 200 hundred pages long. To complicate matters many bank transactions have limited details appearing on the statement. If signers of checks do not have a vested interested in the store, they don’t watch the dollars leaving like you do. Make sure you are reviewing your bank statement every month and questioning unusual transactions and limit the number of people authorized to spend your money.

  1. Part pricing gets overridden and discounted

Discounting parts is like a slow tire leak, you don’t notice it much in the beginning, but eventually your tire goes flat and in this case your gross profits diminish. Who is discounting your parts and who is benefiting from it? You need to be reviewing your parts gross profit on a regular basis and looking at part price overrides to ensure your staff is not abusing part discounting and taking profits from your pocket.

  1. Service tickets are closed to coupons, discounts or other internal accounts

It’s one thing to run a promotion and monitor if it works well. It’s another to review your trial balance, service department and/or your parts department reports and see dollars being written off that were never authorized. What happens is a coupon runs and never gets removed from the system, then it becomes too easy to continue giving it to those who shouldn’t have it. Most systems will even allow you to identify who is doing the discounting and where they are charging it to. Have you reviewed these reports lately?

  1. Employees get discounts that you didn’t approve

If your employees are getting free or heavily discounted services from your store, did you know about it and approve it in advance? If not, you now have two employees picking your pocket at the same time, the one who received the service and the one who gave it away. You should have a set policy in place for all employee transactions covering parts, service and even vehicle purchases to avoid this issue.

  1. Parts returned for cash

Think this one can’t happen? If your shop orders a non-inventoried part (emergency parts) and it turns out to be the wrong one, what happens? The right part is then ordered, and may come from a different supplier because the first supplier didn’t have it. A runner goes to get the right part. What happens to the wrong part? Since it’s not stocked in inventory, it’s pretty easy for the part to leave the dealership, be returned and the refund just may not make it back to you. Make sure all vendors know that all part returns must be handled by providing credit on your account, or by writing a check to your dealership. Your employees are not allowed to accept cash for any parts returns. Additionally, your parts should be stored in a secure location with very limited access.

  1. Sales department policy authorizations

Did anyone even ask a customer to pay for the repair after the sale? Or split the bill? Or did your employee just jump immediately and volunteer that the dealership will pay it all? I’ve seen dealers with crazy amount of dollars charged to policy because the sales team is afraid to ask the customer to pay for something after the sale. Set firm limits on policy authorization in both dollars and who can authorize them, which should be sales management only. Then make sure sales management is accountable for those charges through their compensation plan.

Another reason policy gets out of control is when the sales department fails to set up a We-Owe at the time of sale because the sales team doesn’t want the gross deduction. They hope the customer will just forget about the item discussed. The customer doesn’t forget and then the sales department authorizes the service after the sale in the name of customer satisfaction.  At the end of a month take a look at the sales policy account and compare the charges to that month’s sales. How many of them were things that should have been set up as We-Owes and deducted from gross profit up front?  I suggest a We-Owe on every deal, including those where nothing is owed, and having the customer sign it.  It certainly helps after the sale when the customer returns to the store.

If you wouldn’t like a pickpocket rummaging through your pockets, why would you let your policies and procedures get so lax as to allow your employees to do so?

Harlene Doane

ABOUT

Harlene Doane is the Chief Operations Officer of DealerStrong, previous Editor and Director of Operations for Auto Dealer Monthly. She oversees all dealer relationships for all services offered by DealerStrong. She is also an experienced automotive controller, HR manager, trainer and coach who continues to work directly with dealerships to solve accounting related issues with a practical, common sense approach.