Preparing Your Dealership for Audits

By: Danielle Roth

Though manufacturers have the right to audit your dealership’s incentive and warranty claims, most states have  statutes that an OEM must follow when performing these audits. These procedures vary by state and are important to be aware of if and when your dealership is audited. There are also practical considerations prior to an audit to help insure the audit proceeds smoothly and in compliance with the state laws.

The starting point when an audit notice is received, is to understand how far back the OEM can go in its audit of claims. This essentially establishes the universe of information that is subject to audit. It is not uncommon for an OEM to seek information beyond the period permitted by law, so having an understanding of the permitted time period is crucial.  

For example, in Florida, the audit of service-related payments and incentive payments can only be performed within the 12-month period immediately following the date the claim or incentive was paid. Once this 12-month time period elapses, all payments are deemed final and the dealership cannot be subject to a chargeback or repayment. So, when an audit notice is received and the period of time is identified for claims that will be audited, dealers should confirm that the period matches what is allowed under their state law.  

Second, it is prudent for each dealership to have a designated point of contact for the audit staff to provide claim files and communicate with the auditor about any questions, paperwork regarding the claims, etc. This point of contact should also be familiar with the look-back period under the state law in the event the auditor requests additional information (or claims) outside of that period, and recognize that the dealership is only required to provide information within that period. 

Third, once the audit is complete, the OEM must comply with certain timelines to communicate its audit findings. For example, in Florida, within 30 days of the audit and before the OEM is authorized to issue a charge back, a manufacturer is required to meet an officer or employee of the dealership in-person, by telephone, or by video teleconference to explain the audit findings and provide documentation supporting the findings. There is also the ability for the dealer to provide additional information after that meeting. In Florida, a dealer has  at least 45 days to respond to the proposed chargeback and provide additional information. If after the dealer responds, the OEM and dealer are still in disagreement on the chargeback, the dealer has 30 days after receipt of the final chargeback notice from the manufacturer to file a protest. In the final hearing before the agency, the manufacturer will have the burden of proving that its audit and chargeback are in compliance with state law. 

Fourth, it is also important to note that regardless of the terms of the franchise agreement or OEM policy, the manufacturer may only charge back the portion of the warranty that the OEM has proven is to be false or fraudulent or that the dealership failed to substantially comply with. This means that a manufacturer may only charge back the specific warranty repair within the individual repair order that does not comply with the OEM’s procedures. For example, if there are three warranty repairs within one repair order, the manufacturer is not allowed to charge back all three repairs if only one repair has been identified as being the basis for a chargeback. Once the audit findings are provided, dealers should scrutinize those to insure that any proposed chargeback is limited to the particular claim at issue and does not include other, unrelated claims, even if they are on the same repair order.

To conclude, most  states have audit protections that limit the scope of an OEM audit and the basis for imposing a chargeback after an audit. It is important to know your rights under your state’s laws. If you have any concerns or questions about OEM audits and/or a subsequent chargeback you receive it is important to consult a franchise attorney who can review the chargebacks and advise whether the OEM correctly followed the provisions of your state’s franchise laws when preparing such chargeback.