Over the past few years, warranty audits have become mandatory. They are no longer driven by your dashboard or the health of your dealership in the eyes of the manufacturer. They are happening more randomly as manufacturers work to claw back warranty dollars however and wherever they can.

Planning for an audit includes having strong processes in place before a manufacturer pays you a visit. Preparing the claims for presentation once the audit comes can be difficult if your team isn’t organized. Challenging the findings will be daunting if your team doesn’t have a strong grasp of the manufacturer’s policies and procedures and the state laws that can help protect your money.

Falling short in an audit scenario can be incredibly damaging for your business. Reputation, monetary loss and key players time being consumed in a market that needs their expertise are just a few reasons why it makes sense — on many levels — to be proactive. The good news is there are tools out there to help.

After dealing with the pandemic, supply chain shortages and a changing economy, the auto industry is trying to find its center. Dealers are looking to fixed operations to fill the short fall of smaller profit margins experienced on the front side of the house. This high level of disruption to dealerships has changed many long-standing policies. This fact alone increases the likelihood of things slipping through the cracks. When this is paired with new staff who may not be fully trained, the stage is set for mistakes, as well as the probability of poor decisions.

Since warranty audit visits are back, you are creating a high-risk, high-liability scenario if you are not prepared with a document management process that has vigorous checks and balances.

Knowing this begs the question: Does your team have efficient and consistent processes in place? In a typical warranty audit, most manufacturers review 50-100 VINs. We all know how much detail, as well as supporting documentation, is involved in warranty claims. This equates to many labor hours pulling documents, checking for completeness and accuracy and re-filing the requested documents. Additionally, compiling all this information can lead to misfiling down the road or result in lost documentation. Dealers who do not have a solid electronic system for organizing their documents are putting themselves at great risk.

Employee Training

Given the complexity of the warranty process, regular reviews and consistent reminders are a necessity. This may require training service and parts employees to follow all the necessary steps through the life cycle of a repair order to make sure nothing is missed. It begins with the client booking an appointment for service and doesn’t end until the claim is 100% properly paid and filed for review, should there ever be a need to look back. This requires creating, writing down and making those procedures and policies available to employees. Don’t forget, it’s extremely important to keep employees accountable for the process.

Would you take a long road trip without a map? This would likely end poorly, having wasted lots of time in the process. Traveling with no road map is like holding your team to a process that isn’t written down and clearly documented — only this time, you’re not just getting lost, you’re losing lots of money. It only takes one employee not following the process to cost your dealership thousands of dollars.

Thousands of dollars that could have been avoided.

In order to steer clear of this, employees should know their role in the process and make sure they complete their responsibilities before moving the claim forward. The following are just a few examples of some of the key players touching a warranty claim:

• Service advisors should make sure the VIN Inquiry is run and attached, prior approvals are handled, signatures are present and repeat repairs follow manufacturer guidelines.
• Technicians are responsible for documenting the 3 Cs (Complaint, Cause, Correction) with diagnostic test results. Failure to include all and complete 3 Cs on any line may lead to a chargeback during the audit. They will ensure the Technical Service Bulletins are followed in their repair and noted in their story. They are responsible for their time punching and making sure all one-time-use parts are replaced and charged out on the repair order.
• Managers need to make sure they are authorizing add-on repairs, multiple component replacements, straight time and more.

These are just a few important examples of the hurdle’s dealers can run into during an audit.

Another area where documentation must be researched thoroughly is customer eligibility for incentives. Client information and eligibility are being scrutinized at a new level. You always want to avoid giving the impression of misconduct or being tagged for fraudulent submission by the manufacturer.

Fortify yourself and your team by communicating with them about the expectations of an audit so they can be prepared.

A “no exceptions” policy pertaining to paperwork and warranty work should be understood by properly trained employees. Fraud should never be taken lightly. It is a serious issue that warrants serious action. Help your new hires understand committing warranty fraud or performing unnecessary work will result in termination without warning or second chances. Implementing self-audits is a great way to help your team stay compliant.

Designate a Compliance Officer

Routine self-audit reviews are one of the best ways to ensure your program is compliant when an actual audit happens. Designate an employee as a compliance officer and assign them to regularly spot-checking claims and pulling a few job cards to check for complete, accurate information. You can direct them to conduct these weekly or monthly, but make sure it is consistent. Along with this, there are some important criteria to keep in mind: This position should be assigned to someone other than the service manager or an employee who is incentivized by closed claims or collected dollars. This is to make sure there is transparency and integrity in the process. Extra compensation can be considered for this person since their workload will increase, but their incentive should be based on a clean audit. Make sure their focus is on keeping all the dollars the dealership deserves instead of just closed claims or paid receivables.

Electronic Document Storage

There’s no better time than now to invest in electronic document storage! Stuffed filing cabinets and overflowing document boxes can lead to disaster. A single missing document could result in a costly chargeback for your dealership. Using web-based software to scan and store documents electronically provides a simple solution with significant benefits. It can take your storage from looking like Grandma’s attic to an organizer’s dream. Even better, all documents become instantly available through a quick search, allowing you to compile required auditing materials in seconds instead of hours.

Scanning may not be anyone’s favorite pastime, but it is essential. Scan all documents, including signed invoices, receipts, technician notes, diagnostic tests and warranty claim reimbursement forms. By using a document scanning provider, you can quickly locate all documentation associated with each VIN through web-based software, making the audit process painless and smooth. Typing each VIN into a search bar is much easier than searching through filing cabinets for hundreds of documents. This simple solution offers a big payoff.

Like most things in life, an electronic storage system is only as good as what you put into it. Even the best storage system can’t compensate for careless and haphazard scanning. Assign one of your stronger employees who will have a direct role in the audit presentation process to organize the scanning. Their time will be worth keeping your business in order if it can prevent chargebacks. Given that the role has a direct impact on your bottom line and dealership health, it should not be put on the back burner for an entry-level clerical employee to tackle.

Hire Professional Help

Hire someone in the industry who is familiar with the warranty process. It will pay off in the long run by saving you time and money as well as relieving unnecessary stress — and who doesn’t need that? Make sure they follow best practices and document consistently with uniform standards. You will want them to customize internal auditing procedures for your specific dealership or dealer group. Many companies offer health checks if you don’t have the bandwidth to perform a self-audit. Others offer self-audit checklists so you can perform informal audits on a regular basis. It’s best to find someone with significant experience who has navigated the industry over a long period of time. If they have their finger on the pulse of the industry, and they can help get your employees working together as a team or better yet, help in the training process, it’s a no-brainer.

Remember, those who are prepared need not panic. Have consistent policies in place, and be organized so you can put the cleanest, most complete repair orders in front of the manufacturer when they ask to review them. Know the manufacturer policy and procedure manual as well as your state laws so no dollars are taken from you unnecessarily. Review the final summary with your team to identify accountability. Then, make sure to retrain and update your process list so you know your dollars are protected. Follow our advice above, and audits will be a breeze. Get your dealership in order and make the stress of warranty audits a non-issue!

Warranty Processing Company has been helping dealerships since 1986. They have a number of service plans to fit your needs. Their knowledge of cars, industry experience and extensive service background make them the perfect partner to increase your warranty gross profits.

Justin Carr is the vice president of sales and marketing at Warranty Processing Company, which recently relocated to Texas. Justin works with dealers nationwide to increase efficiencies within service departments and educates dealer staff on why efficiencies. To learn more, visit warrantyprocessing.com.