Automotive Fleet

DEC 2013

Magazine for the car and truck fleet and leasing industry

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Page 15 of 99

MARKET TRENDS BY MIKE ANTICH How to Minimize the Risk of an Internal Audit of an Employee Sales Program T he best way to maximize resale proceeds, thereby minimizing depreciation, is by selling vehicles to employees. Fleet managers can price vehicles above traditional wholesale values, but below what employees are able to buy in the retail market. In addition, employee sales are faster, which translates into a faster application of the fnancial proceeds. Since many feets fund vehicles using an operating lease, employee sales should be fair market value sales transactions. Tere are several major used-vehicle residual guides feet managers use to determine fair market value. Some are strictly wholesale price guides, while others ofer a combination of wholesale and retail prices. To make employee purchases attractive, feet managers will most ofen use what is known as "wholetail" pricing — pricing that falls between wholesale and full retail. Unfortunately, feet managers don't ofen see many of the vehicles they manage. Tey depend on condition reports, vehicle histories, and photos to tell them the condition and mileage of a particular vehicle. Most of the used-vehicle resale guides will show an average base price, and allow the user to add or deduct value depending on condition, equipment, mileage, and, sometimes, regional adjustments. A feet manager should ensure the vehicle's fair market value is documented and that the transaction is completed at that fair market price. Tere should be no special allowances made, because those situations become problematic under review by a skeptical auditor. It is always easy, afer the fact, for auditors to second-guess earlier transactions. Fixed vs. Negotiated Prices Tere are two ways to sell a used feet vehicle to employees — at a fxed price or through a negotiated sale. If a bidding procedure is used, a feet manager must develop a process that allows employees and others to submit bids on vehicles within specifed parameters. When only one bid is received, it is important the price be within a range of a fair market value. A foor should also be set based on the vehicle's fair market value at the time it is ofered for sale. Te bids should be accumulated and reviewed by two people to confrm the best ofer is accepted. Have two people in the department sign of and confrm that it is indeed the best ofer. It is important to keep a record of all ofers. Retain a copy of the sales notice with your documentation. It is also good to remember that auditors, by their nature, are skeptical. Tis reality is best summarized by the adage that "the faintest ink is better than the best memory." Tis is a good practice to follow. For instance, a feet manager has a lot going on in a busy feet department, so a year 10 AUTOMOTIVE FLEET I DECEMBER 2013 later, and maybe several hundred cars aferwards, he or she may be hard pressed to justify a questioned transaction for a particular vehicle. It is ideal to be able to pull out the fle and say: "Here are the signatures of two people in the department. Both looked at the ofers. Here are all the ofers, here is to whom we sold the vehicle, and, as you can see, it was sold at the highest ofer." Compliance with the Sarbanes-Oxley Act of 2002 is mandatory for all publicly traded corporations. Under the federal law, corporations must eliminate all conficts of interest, establish processes to ensure honest corporate disclosure, and govern with greater accountability. Furthermore, the legislation mandates accuracy of a company's fnancial reports, requiring fnance departments to better understand the true picture of a company's inventory and assets, such as with feet. How a feet complies with Sarbanes-Oxley (SOX) depends on whether it constitutes a material part of its company's fnancial processes. It is these companies that are the most likely to include feet operations in their SOX-compliance audit. Avoid Exceptions When selling out-of-service feet vehicles to employees, companies need to ensure feet policy is uniformly applied — without exception — and that all buyers are treated uniformly and consistently. If a driver is quoted a price that doesn't properly refect the actual mileage and condition, the feet manager should carefully consider the possibility of adjusting the price accordingly. But, most times, a price is the price, and the feet manager should hold his or her ground. Sometimes there is simply no room for negotiation. If the driver/employee's ofer is far below the wholesale price, it may be clear the best option is selling the vehicle on the wholesale market. However, when the selling prices of used company vehicles are negotiated individually with employees, rather than sold at a fxed price, there may be a perception that not all employees are treated uniformly under feet policy. Tis is especially the case if certain employees receive preferential pricing in the purchase of out-of-service feet vehicles. Although primarily an ethics issue, if a feet manager is actively involved in individual price negotiations, it is prudent that he or she documents the procedures for this corporate policy. Auditors want to ensure that feet policy is being enforced uniformly and consistently throughout the organization. A company vehicle is a valuable corporate asset. Consequently, senior management must approve the employee resale process and, once approved, a feet manager must follow it very strictly. Let know what you think. AF

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