Garage Audits for Auto Dealers

Premium Audit – Auto Dealers

It is very important for an auditor to fully document their audit worksheets and to leave a detailed audit trail. By doing this the auditor provides the details of the audit procedures and an explanation of how the rating units were calculated. This will help other interested parties, insureds, underwriters, premium audit managers, etc., to answer and questions or issues with the audit results. This section will identify the most common information necessary for a quality premium audit and provide an example of an audit worksheet.

Employees’ Names – The names of all the employees should be provided on the audit worksheets. By doing this, the auditor will show how each employee’s exposure unit was calculated and the assignment of the exposure unit to a classification.

Employees’ Duties – By providing the duties of all the employees, the auditor is documenting one of the key classification issues. This information will help explain why employees were assigned to the various classifications. The executive officers, partners, and proprietor should be identified in this section.

Employees’ Wages – A question may be asked as to why is the gross payroll necessary if the audit is based on rating units? By recording the gross payroll and reconciling this total payroll to the quarterly tax returns, the auditor verifies that all of the employees on the payroll are accounted for in the audit. Any deviations should be explained on the audit.

Full Time or Part Time – Noting which employees are considered full time versus part time details another one of the keys to the calculation of the exposure unit.

Weeks Worked/Employed – The final aspect of the exposure unit calculation is determining the number of weeks that each employee was employed. The calculation of the exposure units is determined from this information and the full time or part time information as detailed on a premium audit worksheet. Remember, it may be necessary to review the files of employees such as commissioned salespersons to determine the number of weeks worked as these employees only get paid when they sell automobiles.

Covered Auto – The final piece to the classification puzzle is whether the employee’s duties primarily involve the operation of covered vehicles or if the employee is furnished a covered vehicle. This could be accomplished with a simple yes/no response or the distinction between the employee’s primary duties or being provided with a vehicle can be made here. This information is helpful in explaining why some employees were assigned to Class I-A.

Employees not in the Payroll Records – Auditors should review the dealerships cash disbursement journals, Profit and Loss Statements, 1099’s, or other records to determine if there is any exposure for employees who are not on the payroll. The most common examples of this exposure are commission-only salespersons and lot attendants who arrive before the dealership opens and washes the vehicles. These employees should be assigned to Class I-A or Class I-B in the same manner as the employees that are on the payroll records.

This completes the review of the payroll records and the assignment and classification of Class I exposure units. However, the audit is not complete. The auditor must verify the existence of class II individuals. Also, a complete audit worksheet will provide the details in relation to the insured’s operations, the auditors contact(s), and any notes that will help explain the audit findings.

Spouses, Children, and Others Furnished Covered Vehicles – It is very common for the owners to provide non-employees with a covered vehicle – more commonly referred to as a company car. The auditor needs to ask the question if covered vehicles are provided to any non-employees. The most prevalent exposure here is a company car provided to the spouse of one or several of the owners of the dealership. Remember, this exposure cannot be found in any of the payroll records, the auditor must always inquire about non-employee exposure.

Description of Operations – A detailed description of operation will provide a written explanation of the risk’s operations and additional information regarding the classification procedures. This section should include what types of franchise(s) are held by the dealership (if any), what operations are present at the dealership, and any unique situations encountered with this risk. Additionally, all classifications should be listed including descriptions of which employees were assigned to each classification. The classifications with no exposure should be listed with an explanation of why there is no exposure.

Notes – Auditor should reserve a section of their worksheet, or utilize a separate form, to provide their notes to the audit. These notes will document key issues and/or problems encountered during the audit. Additionally, this section can be used to explain aspects of the audit that may not be fully explained in the body of the audit or to pass valuable information to other departments.

Contact and Records Information – This section provides the name of the individual(s) who the auditor received the audit information from, their title(s), address of the audit location, phone number(s) and any other relevant information regarding who and/or where the audit information was derived. Additionally, the auditor should list the specific records used to develop and verify the information. If a dispute occurs, the auditor will know exactly where to go to retrace their footsteps.

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