Cash is King!

Over the years I have told our automotive team to remember that “Cash is King;” especially when performing work relating to the review of internal controls or the review of the operations of a dealership’s accounting department. I emphasize the importance on finding out first whether or not the bank accounts are being reconciled, adjusted, and reviewed timely. I furthermore stress the importance that all reconciling items being clearly identified. When asked why, I remind our team the importance of management’s role to monitor “Cash” (in the
dealership) and its effect on so many significant balance sheet accounts / areas that are used by them to make decisions.

Unfortunately, after years in the industry, I still occasionally come across the problem of bank accounts not being reconciled or that the accounting department is behind. Monitoring cash / bank accounts needs to be one of the top priorities within the accounting department. When dealerships get behind in reconciling cash they typically say “we will get to it when we get time, but there are other areas we need to take care of now.” However, that time never comes around. The reconciliation process now becomes extremely frustrating and difficult. You end up spending a lot of addition time (than originally needed) getting up to speed going back reviewing the bank statements and general ledger posting and then scheduling / identifying and make correcting entries. This is usually when management asks us for

Remember, when bank accounts are “not” reconciled, many dealership accounts are affected which effect management decisions. Receivable accounts such as vehicle receivables, contracts-in-transit, and parts and service are effected and possible incorrect as well as other payable or factory accounts. “Heat sheets” (for the receivables) are probably now incorrect and the list goes on and on.

Management needs to:

(1) review and verify that bank reconciliations are being prepared, reviewed and adjusted timely (i.e. monthly), (2) be-aware of changes in the accounting department personnel and if the person performing the bank reconciliations change, as well as any other position, that other persons are being cross-trained to step in. Note, areas where is cash is involved is typically one of first areas where fraud occurs. The quicker you detect something is wrong, the lower the potential damage to the bottom line is.

Here is a quick recap of steps to help keep “Cash” as a priority in your dealership:

(1) reconcile your bank accounts and clearly identify all reconciling items,  (2) post all reconciling items timely,  (3) have someone independent of the preparation process timely review the reconciliations being prepared, and  (4) if possible, segregate incompatible positions; the person preparing the bank reconciliations should be someone independent of other cash functions within the dealership.

Remember Cash is King!

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LSL Staff

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