Internal Auditing for the F&I Department
One meaning for F&I is “Found Income”. Unfortunately, some dealers have discovered that found income finds its way to personnel rather than the dealership.
Power without accountability invites corruption. That is why every dealership should have different departments bringing in the cash and counting the cash. Think: audit trail. Think: checks and balances.
Working with Receipts
Let’s start with receipts — who takes them and when? F&I should first record all the monies into a night receipt book and then put all receipts into a night drop safe that no one in sales or F&I can open. Number the record and account for each receipt. Typically, a receipt book is three-part NCR. The white copy of the receipt goes to the customer; the pink copy stapled to an envelope that contains the check(s), currency, or title. Place the envelope in the drop safe.
Two pairs of eyes must watch the funds go into the safe and two pairs of eyes should see the safe open.
In the morning, when the office personnel arrive, the office manager and one other person must retrieve the night receipt book from F&I, go to the drop safe, open it, and gather all the receipts from the previous night. Together, the office manager and designated person open each envelope, count out the currency, and check it off by initialing the receipt book. They then follow up this procedure by writing a receipt into the accounting receipt book or cash register. Staple a copy of this receipt on the yellow copy of the NCR night receipt book and return the book to F&I for further use. Only sign out one receipt book at a time. This is critical because multiple receipt books invite confusion about accountability.
This receipt system should be easy to audit. Simply conduct spot checks on the night receipt book, verify that all the yellow copies have an office receipt attached, and verify which F&I manager signed out the night receipt book.
Tearing Apart the Deal
Some dealerships have a billing clerk do this job, while others have a title clerk prepare the loan package. Either way, be sure to use a form(s) checklist. This list originates with the sales manager and continues through the deal into the accounting office. The documentation should be separated into five categories.
* Loan documents
* Policies sold
* Title work for the trade-in and for the sold unit
* Internal documentation – disclosures/due bills/copies of invoices or book-out sheets/repair orders
* Down payment funds
Let’s look first at loan documents. The person who pulls apart the deal should verify the transaction. Is the down payment correct? Do you have it? Itemize everything F&I sells on the contract (pursuant to Reg. Z). Yes, some states do not generate retail installment contracts with enough lines to accommodate each product or service sold in F&I. In these instances, the purchase order itemizes out the transaction. Each product or service in F&I is an item that requires a paper trail. If you do not have a policy acceptance, do you have a customer declination specifying that the customer declined the protection?
Do any of your customers purchase a service agreement in cash? Sometimes customers return to the dealership after delivery to buy a service agreement or protective coatings. This transaction requires paperwork, including a policy as well as receipt of funds from the customer. If the funds are short, is there a promissory note of some kind? Is there a “hold check” from the customer with a signed authorization to hold the check(s) until a certain date? Are they taking advantage of a “zero” interest payment plan offered by some service agreement companies?
The point to make here is that each transaction creates paperwork. If F&I forgot to print out a policy, make sure they do print the policy and get the customer into the dealership to sign it. The lenders want a copy of the policy, so this documentation is required for funding.
Retain a copy of the customer declination in the deal file and give the customer a copy of the declination for their records. The declination is proof that the customer was offered all products in the F&I office and chose not to have the protection.
Driving Results
We all prefer a harmonious working environment, and almost no one wants to drive the bus. However, when it comes to receipts, policies, and paperwork, dealerships must have a hard charger to count on to make the system work.
In upcoming articles, I will address the remaining four categories of documentation in turn. Happy audit trails until then.
RV Executive Today, 2006 RVDA Convention Issue