One of the graphic pictures in one of the presentations I recently gave is a picture of a bullfighter. The bullfighter’s shin has been punctured by the bull’s horn and the picture captures that moment when the horn punctured the skin, but still remains fully inserted in the fighter’s leg, ready to exit near the knee.
The caption? “There comes a moment when you know the pain will soon begin.” (The editor, wanting to spare the you the pain of seeing such a gruesome picture, decided not to run it in the magazine.)
I use it to transition from background information to potential penalties if dealers don’t put a compliance program in place.
That moment is steamrolling in a couple of high exposure areas.
There are two entities that have regulatory or franchise powers over dealers who may come knocking on your door to conduct an audit and relieve your bank account of some significant dollars — your state and your manufacturer.
Many states are wallowing in debt and don’t seem to be able to balance budgets. There are only so many expenses that can be cut; somehow these states need to find additional sources of revenue.
Some states do not have personal income taxes, relying on taxing tourists and traveling business people instead. The recent downturn in tourism has led to a downturn in tax revenues.
Other states have low personal income taxes and the politicians are hesitant to raise taxes and cut expenses.
These states apparently recognize that an untapped source of revenue sits out there for the taking: Unclaimed Funds.
Unclaimed funds are monies due to consumers by businesses, not just car dealers. Generally speaking, this occurs when a business refunds a deposit or consumer overpayment to the consumer and the check comes back because the consumer has moved.
Responsibilities from there can vary by state, but essentially, the business is required to file a report and remit the unclaimed funds with the state. The state then makes a minimal attempt to post the claim somewhere and requires a consumer to prove seventeen times over that the money belongs to the consumer. If these funds remain unclaimed after a period of time, the state takes the money into its revenue coffers.
Reports are growing that states are becoming more aggressive in the auditing businesses, include auto dealers, for failure to report and remit unclaimed funds as state law requires.
One state’s penalty for non-compliance is $500 per day up to $5,000 plus 25% of the unpaid unclaimed funds. That’s an awful expensive interest rate if you are taking unclaimed funds into miscellaneous income instead of reporting and remitting as required.
Feel the pain starting?
If you don’t have an unclaimed funds process in place, it may be a good time to do so.
Recently, a dealer handed me a treatise sent to him by his manufacturer. This treatise started by an assumptive close that said the dealer agreed to the information contained within, even though the dealer had previously declined an opportunity to sign an acknowledgment when the information was presented by his factory rep.
This treatise outlined the manufacturer’s employee purchase and incentive programs, the dealer’s responsibilities under these programs, and the documentation required to confirm the consumer’s eligibility under these programs.
It also included a sample of potential audit findings that could lead to chargebacks.
Now, we all know that the manufacturers continue to work on the bottom line to appease various constituents. I think you would agree that any dealer that is blatantly defrauding a manufacturer on employee purchase or incentive programs deserves to be audited and charged back for ill-gotten monies.
But the subtle threat here is that this manufacturer is going to come after dealers for potentially being sloppy on paperwork.
Feel the pain starting?
If I were you, I’d conduct an incentive and employee purchase audit to see if your files can withstand the scrutiny of a factory auditor.