Getting Down To Basics: The F&I Audit Trail
One of the F&I basics entails tracking who writes what, where it goes, who handles it, who is accountable for it, and where you can find it. At a recent industry convention, a dealer confided to me that a long-term, trusted F&I manager pocketed $25K in cash transactions when policies were not turned into the accounting office. Now please do not stop reading. I do not think all F&I managers steal. An extreme minority commits some infractions of trust, and when these occur, it is typically because there is no audit trail to create accountability.
Policy principles
Most of the policies used in F&I are numbered. As such they are viewed as controlled documents. Who tracks the policies by the number in the dealership? It should be someone in the accounting office. These policies are as good as legal tender. A customer who holds a completed policy has coverage whether or not the dealership has made payment to the policy company.
What happens if the customer pays cash for the policy, receives a copy of the policy from the producer, and neither the policy nor the monies are turned into the accounting office for payment? Might there be an opportunity for theft?
When the deal is turned into the office, it is critical that the person who processes the paper also verifies all the documentation. For example, if the purchase order or installment contract shows a charge for a policy, the charge can be matched up with an actual policy. If the policy is missing, it is necessary to notify the F&I manager and ask for a copy of the printed policy.
A properly executed audit trail will include a copy of each policy filed numerically, a second copy filed with the payables, and a third copy of the policy filed in the individual deal jacket. Yes, this will require making copies of the policy. Yes, the accounting office will need to be the keeper of the forms and hand the pack of forms to the F&I manager. And yes, this procedure will require the F&I manager to sign for the documents. For those of you reading this far, please understand that while I am not lobbying for increased bureaucracy, I am advocating an audit trail that dictates accountability for monies receipted in and for policies written.
Receipt rules
The best deterrent for theft is having and using an audit trail. Check and balances usually include two separate sources verifying the results. Receipt books are a case in point. The person who writes the receipts should not be the person who generates the bank deposit. Use drop safes in the sales / F&I department. During business hours receipt all monies in the accounting office. After hours, use a night receipt book. Make sure all receipts are numbered. Use only one receipt book at a time. Each receipt should have 3-part NCR paper. The original receipt goes to the customer. The pink copy is attached to the envelope that contains the cash/check/combination thereof. The yellow copy remains in the book. The receipt should show the customer’s name, deal number, what the monies are for, date, and name of person writing the receipt. Place the monies in an envelope with the pink receipt copy attached to the envelope. Then ensure that two people watch the envelope go into the drop safe and use a ruler to make certain the envelope has dropped. If the deposit is more than one envelope, then note on the envelope “one of two”, “two of three” or whatever numbers may apply.
Just as two pair of eyes watch the envelopes go into the safe, two pair of eyes should watch as the safe is opened. The two people who remove the deposits from the safe do so with the night receipt book in hand in order to verify by signature that they are in receipt of the funds. The funds are then taken into the accounting office where the funds are receipted into the main receipt book. The original copies of the “main” receipt are then given to the F&I manager to attach on the yellow copy in the night receipt book.
Better business basics
For those who have made it to the end of this audit trail detail, congratulations! You have reviewed what it takes to track money, policies, titles and returned parts. You have reinforced that when it comes to handling money, everyone in the custody chain must be above reproach. You have joined the ranks of those who know when it gets right down to it there is no substitute for taking care of the basics of your business.
World of Special Finance Magazine – Canada, November/December 2005, p. 9