Internal audit considerations for used automobile dealership - Risk Advisory - Aryan Consulting

Trading Business Internal Audit

Let's discuss today, industry audit procedures performed for audits of used automobile dealerships.

The used car industry is composed of new car dealers who accept trade-ins on the sale of new

automobiles and can also purchase used vehicles directly from customers, other car dealers or independent auto dealers. These dealers not affiliated with an automaker and, their principal business is the sale of used vehicles.

When examining an independent used vehicle dealer the auditor will perform standard interview

questions. These may consist of one or more of the following industry specific questions.

Sales:

1. Do you keep a personal record or list of your profits on each vehicle or deal?

2. What types of sales transactions did you have for the year under examination?

3. Any sales at auctions? If yes, which?

4. Any sales to wholesalers? If yes, which?

5. Any sales to other dealers? If yes, which?

6. Any consignment sales? If yes, volume?

7. Any scrap sales? If yes, describe.

8. Any in-house dealer financing sales?

9. Any third-party financing sales?

10. Did you have any other types of sales transactions?

11. Did you have any sales that resulted in a loss on the sale? If yes, describe the nature of these

sales.

12. Is there interest income on dealer-financed sales?

13. Are there commissions or referral fees on third-party financing?

14.How are sales recorded?

° When selling a vehicle, how do you report the sale?

° What are the typical gross sales prices per sales contracts?

° What is the net cash received upon sale after discount and/or trade-in?

° Are sales taxes reported in the gross sales price?

° Are licensing fees or titling fees included in the sales price? (If the answer is no, auditors

will look for these in expenses and make necessary adjustments)

15. Do you sell warranty or service contracts ?

16. Do you sell finance contracts?

17. Vehicle repairs?

18. Portering/detailing services?

19. What are the typical pricing policies and discounts?

20. When setting an asking price for a vehicle, what information sources do you consult, for

example, Blue Book?

21. When valuing a trade-in vehicle, what method do you use, that is, resale value to a

customer, wholesale value to another dealer, or some other method such as personal

judgment?

22. How do you arrive at the amount of discount you recognize on a sale?

Inventory Items

If a vehicle is parked or repairs are made to it for resale, how do you record these costs?

• Current expense?

• Added to the value of the vehicle?

Risk considerations

The inherent risk considerations for used car dealerships are:

1. Overvalued purchases

2. Non-consideration of repairs to cost

3. Non-consideration of add-ons and accessories to cost

4. Inclusion of holding costs

5. Collusion between customer and sales person

6. Security of inventory

7. Under-reporting of sales value by sales person

8. Failed purchase SOP resulting in bad purchases

This was my observations for Internal audit considerations for used automobile dealership - Risk Advisory

As always expecting your inputs, feedbacks and likes.....