Digital Dealer - January 2019 - 29

STEALING OF PARTS INVENTORIES ARE AMONG
ONE OF THE MOST COMMON EVENTS OF THEFTS
IN AUTOMOBILE DEALERSHIPS, AND MORE LIKELY
THAN NOT, IT IS OCCURRING INTERNALLY WITH YOUR
EMPLOYEES."
not involved in the posting/
recording of these invoices
in accounting, and keep in
mind that depending on the
factory, this payable may
also include warranty credits, vehicle incentives, and
other payable/receivables
from the factory.
Some items that lead to
discrepancies, besides theft,
and this is by no means an
exhaustive list, include the
use of parts cost overrides
or quantity overrides; pending tickets that are relieving
inventory with no associated repair orders or never
closed, special order parts
that aren't accounted for
on the pad, and clean and
dirty cores that aren't being
accounted for on the pad.

WITHIN ACCOUNTING,
EXAMINE TRANSACTIONS IN THE PARTS
INVENTORY ACCOUNTS;

are they coming from the
correct source, such as
parts and service journal
sources, and purchase
journals? Are there any cash
disbursements or general
journal entries? If so, why?
These sources shouldn't
generally be used in these
inventory accounts. We
have seen payable invoices for non-OEM parts that
aren't being recorded to the
correct inventories within
accounting, sometimes expensed in error. These can
help explain discrepancies

as well.

HAVE AN INDEPENDENT PARTS PHYSICAL
PERFORMED. It's amazing

what can be discovered by
an independent third party
counting and reconciling
your parts, and commenting
on the conditions of your
parts departments. This
should be done at least
annually as a best business
practice, and a perceived
safeguard against possible theft within this area.
Stealing of parts inventories
are among one of the most
common events of thefts
in automobile dealerships,
and more likely than not, it
is occurring internally with
your employees. Even If
you haven't had inventory
discrepancies in the past, it's
a good idea to have these
performed.

TAKE GREAT CARE IN
SELECTING A QUALIFIED
THIRD PARTY TO COUNT,
RECONCILE, & SUMMARIZE YOUR NVENTORY

When using a company for independent parts
physicals, observe what
their procedures are. How
are they counting and
recording the quantities in
bins; are they punching the
results to get an accurate
total amount for the pad;
and most importantly, are
they reconciling back to
the general ledger. In the
statement earlier about parts

dollars being higher than the
accounting records, these
were not being done by the
company. The reports given
to the dealer after physicals
were performed showed
no indication that physical
amounts were tied out to accounting, nor did they show
what was actually done
as it pertained to the work
performed by this company.
The dealer(s) were given
summaries that basically
mirrored the parts reports
prior to the physicals. There
was no backup for any of
the work performed. In these
instances, this indicated that
the independent company
counted the parts, bins, etc.
but didn't follow up to reconcile to actual, rendering their
results unusable.
The above is an extreme
example on using a third
party, but it did happen to
two of our clients, (who had
significant overages in physical parts, due to overriding
on costs amongst other
factors) so we want to make
you aware that it does occur.
When researching these
companies, talk to other
dealers who use them, ask
for sample reports, and
consult with your automotive
CPA firms, if applicable.
They generally know many
of the companies that perform these services and can
assist you in finding qualified
third parties to count, recD I G I TA L D E A L E R . C O M

oncile, and summarize your
inventories, and hopefully
consult with you on best
practices.
If a third party is used,
ensure that their results and
findings are discussed with
you and appropriate personnel within your dealership.
What should be on their
reports include the amounts
of write-ins that they had
to do, which shows that
parts are either in the wrong
bins, or they aren't properly
identified within the inventory system. They should be
able to identify and report on
the aging of the inventories,
parts obsolescence, and the
general conditions of the
department. Their reconciliations and the mechanics behind it should be no different
than what was noted above.
KEY POINT: The accounting for your investment
in this asset of parts inventories shouldn't be treated any
differently than your cash.
Reconciliations should be
conducted frequently, and
any variances should be
addressed immediately with
causes determined.
SCOTT LEWIS became a CPA
and started his career with
two privately held automobile
dealerships from 1996 - 1998.
As one dealership was acquired
by AutoNation, Scott acted as
a corporate liai-son during that
transition period. Scott joined
Rosenfield and Company in
1998 and has been with the
firm ever since. EMAIL: Scott@
rosenfieldandco.com

JANUARY 2019

29
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Digital Dealer - January 2019

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