Pub. 3 2013 Issue 2

19 ledger on a monthly basis. In a perfect world, the pad and the general ledger would always coincide. But the former is maintained by the parts department, the latter by accounting. Most differences result from timing gaps between order entry, physical receipt of parts and invoice entry. Open repair orders and returns also cause legitimate discrepan- cies. But some variances signal problems, such as: • Careless receiving and ordering practices, • Theft and financial misstatement, • Billing and data entry errors, and • Poor communication between parts and accounting. You may also want to count a portion of the inven- tory each month (not necessarily at month end). This is called a cycle count. A cycle count becomes part of your monthly procedures and doesn’t need to be performed at the end of the month. By year end, all of your inventory will have been counted. Monthly inventory reconciliations and counts can catch errors before they spiral out of control. Your objectives: Identify sources of any discrepancies; located missing, damaged or inaccurately priced items; and train employees to prevent mistakes from recurring. What precautionary steps are needed? As parts and accessories are consumed, instruct clerks to use an “inventory action sheet” to record when they take the last part from a bin or if the pad shows a count difference from the physical quantity on the shelf. This information can help you reorder parts and unearth dis- crepancies. Ensure your parts manager is up to speed on the latest ways to monitor and estimate parts depreciation and ap- preciation. For instance, if the factory decreases the cost of a part you own by $2, the parts department needs to record a depreciation adjustment. It’s also important for the parts manager to verify what’s coming and going with purchase orders, bills of lading, packing slips and outgoing freight orders. Who can help? The ill effects of an out-of-control parts department can infect your entire dealership. Inaccurate parts counts frustrate technicians, reduce prof it margins and cause delays that may discourage customers from returning. If you need help in this area, ask your CPA for some fresh perspectives and industry expertise on parts inventory best practices. Q Keith A. Laudenberger, CPA is an accounting and audit manager at Councilor, Buchanan & Mitchell, P.C. (CBM), and serves on CBM’s Automotive Industry Committee. He has more than 12 years of public accounting experience providing services to automotive, construction, real estate and technology companies as well as not-for-profit organizations and government contractors. Fraud-proof Your Parts Department Employee theft is sometimes the cause of inventory discrepancies. Parts targeted may include navigation systems, aluminum wheels, headlights and stereo equipment. But catalytic converters have emerged as another hot commodity. They contain valuable metals – platinum, rhodium and palladium – that can be resold on the open market. So, what can you do to prevent fraud from occurring? Start with background checks on parts personnel and, if you haven’t already, implement physical controls, such as: • Locking the parts and accessories storeroom even during business hours, • Limiting access to the storeroom and its keys, • Installing security cameras, alarms and mirrors (even “dummy” electronics can fool would-be thieves), • Recording serial numbers or tags for high-value items, • Changing “pad” passwords frequently, and • Spot-checking parts inventories periodically. The cost and hassle of these security measures is recouped with fewer write-offs for lost, stolen or damaged items. And tighter security creates a sense of accountability for personnel with access to the parts storeroom. 