Year 27 – 2014 – Car Maintenance – Part 1

The company I worked had a fleet of cars that we maintained, and when beyond a certain age, were sold.  The analysis below describes an audit that looked at the controls around both of these processes.

The new manager of the company garage had only been in charge for a year and was already well respected and well liked.  He and his assistant provided quick and efficient maintenance service for all the company cars.  The garage also contained a gas pump and was considered a ‘Full Service’ station.  Unfortunately, the manager definition of full service went far beyond what the company’s management would have liked.

The garage manager was permitted to perform work on employee’s vehicles, as long as the employees were charged the full cost of the parts used for the work performed.  The company allowed employees to purchase automobile parts for their personal cars at the company rates that were reduced considerably when compared to the retail value of the parts.  The employee would purchase the parts and the company was invoiced at the discounted rate.  The employees would then submit their payment and invoice to the parts manager who would remit the money to the company; and the company would pay the vendor.  However, the manager was ‘correcting’ invoices and making it look like the parts had been used for company cars.  He would keep the money and the company would pay the bill.

The manager was also responsible for the disposal of used vehicles no longer considered economical to maintain.  The manager managed to sell many of the used vehicles to a friend at 65% of the book value.  The friend then sold the vehicle for the book value and split the profits with the manager.  The process called for sealed bids to be submitted by persons wishing to buy the vehicles.  However, the manager would show prospective bidders a car in much worse shape than the one actually being sold; or would invent stories of accidents or mechanical troubles the car had been through.  As a result, the bids from other buyers were usually even lower than the friend’s bid.

Vehicles, which were to be sold, were equipped with new tires, mufflers and other parts just prior to being sold to the manger’s friend.  This significantly increased the value of the vehicle being sold to the point that sometimes the new parts were worth more than the car.

Finally, the manager would fill up employees’ cars at the gas pump and charge the gas to a company car.  The company maintained a fleet of cars for use by employees.  A credit card was kept in the glove compartment of each card to be used when employees ‘purchased’ gas or had repair work done on the vehicle at the company garage.  However, several employees, who were friends of the service manager, were bringing their personal cars into the company service garage for maintenance and even filling up their tanks with gasoline.  The cost of the gas was charged against the car’s credit card.  The service manager then charged the employees half the actual cost of the gas ‘purchased’.  The employees benefited from only having to pay half of the cost and the manager kept all the cash he received.

The auditors were performing the yearly review of the garage operations.  They were totally unaware of the frauds being committed by the manager and his assistant.  This did not, however, stop them from finding out what was happening.

The first analysis performed by the auditors was to total the repair work by vehicle.  They were quite surprised by the total dollar value of the repairs performed on the company cars.  A refinement to the analysis separated the vehicles by year of purchase.  The manager had been so busy with his scheme that even newly purchased cars were showing repair work.  The auditor was particularly suspicious when invoices were paid for parts on cars that were still under the original warranty.  The analysis revealed that some cars less than one year old had undergone as much repair work in the last year as cars much older.  The auditors calculated the total repairs by type of repair to determine the 5 most costly repairs performed.  Next the auditors then totaled, by vehicle, the number and amount of repairs, by type of repair – tire, muffler, alternator, tune up and battery, for all cars less than one year old.  They found that three cars that were less than one year old had a more than usual amount of repair work.  One had four new mufflers installed and another had 12 new tires.

Because of this startlingly finding, the team lead decided to expand the scope of the audit and perform more testing on the repair work and examine the controls over the sale of used cars.  Next week we will see the results of their expanded analysis.

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