They say that the best description of a tax auditor is someone who arrives after the battle and shoots all the wounded. I’ve been through some rough tax audits for my clients, but the worse was after a controller quit. The tax audit was the next week and I couldn’t find the general ledger detail for the accounts being audited. The office staff told me proudly that they were fully “paperless” and no longer printed the books. I was impressed until the moment I asked them for the archive CD. The office and former controller admitted they were lost. Their legacy DMS only had detail for the current year, so I decided to restore the DMS to a few years ago during the night. But they had written over the backup tapes for those years. I checked with the DMS provider and they didn’t have the detail either.
Frustrated, I had almost given up when I noticed the wall of file cabinets storing the invoices and checks for all the expenses in question. The IRS wanted detail for only three accounts, so we stopped everything and started pulling out documents. By the end of the week we had an overwhelming pile for the auditor. The IRS requires electronic detail, so we quickly entered them into Excel and ended up recreating over 95% of the detail. The next week we sailed smoothly through the audit with no taxes due, but it made me worry about the concept of becoming paperless. Is your DMS system dooming you for disaster during an audit?
“Is your DMS system dooming you for disaster during an audit?”
During the next few years, over 30% of dealers will switch DMS providers and that often means that your dealership could lose valuable information. You need the general ledger detail for the past 5-10 years and an electronic copy of your documents if you don’t print a copy (repair orders, parts tickets, deals, receipts, checks, and journal vouchers). Over the past decade, many DMS providers archived this information for you. Although they claim that you don’t need to print a copy anymore, what happens when you leave them? Your new DMS provider can get your service history, parts and vehicle inventory, customers, GL and schedule balances, but most can’t get a copy of the archived documents and historical detail.
Why not? That is because most legacy systems do not have a way to export archived data. Yes, you can bring up each report, parts ticket, repair order and then print to a PDF file – but you need THEIR DMS system to do that. We consider that to be a closed archiving system. Before you buy your next DMS system, find out if they provide you with your archived data and how often. Newer DMS providers not only store all years of general ledger detail on their system with an easy export, but they also send a CD copy of the archived documents to each client at the end of the year. Why would they do that? Easy, it enables another “backup” of their system in the perfect place; the dealer’s own safe.
How can you create your own archiving system? The first step is to no longer depend on a DMS provider to do this for you. When I wanted the missing data during the audit, the first place I looked was on the controller’s PC and the network. You should use this place or use a third party storage system to keep your data. Create a monthly task to archive reports so you’ll be reminded by email if you forget.
What about documents? Repair orders are a big risk because you need those for a warranty audit. You might want to start a procedure today that has the cashier or warranty clerk bring up the archived version and then save to your own network drive. That means that if you change DMS providers in a few years, you’ll be ready for a warranty audit. We all dread an audit, but the best way to survive is to be prepared and find out today if you are saving what you need.
Author: Sandi Jerome
Sandi Jerome is the owner of Sandi Jerome Computer Consulting. Sandi founded DealerStar, a web-based DMS. She is a former CFO, System Administrator, Fixed Operations Manager, and Controller with over 30 years experience in the auto industry.