Managing the Financial Side of Commercial Fleets

Surviving an Internal Audit: What You Need to Know

Facing an audit may be an unwanted headache for a fleet manager, but it doesn’t have to be. Find out how to make the experience as positive and painless as possible for all parties involved.

March 2013, by Grace Suizo - Also by this author

For individuals responsible for managing one of an organization’s most costly assets (averaging monthly operating costs between $211 and $593 per vehicle in 2011), an internal audit is just something that comes with the fleet manager’s territory. While the thought of being audited is undoubtedly less than thrilling, the experience doesn’t necessarily have to be an unpleasant one. It’s all a matter of perspective.

Mike Butsch, director of global fleet operations for Joy Global, has sucessfully managed several audits in his 13-year fleet career, which he wears with a certain pride. “Most people look at an audit as negative, but it doesn’t have to be,” he said, noting improvement in business practices
is just one benefit of the inspection.

Theresa Belding, senior manager of fleet services for Forest Pharmaceuticals and Automotive Fleet’s 2011 Professional Fleet Manager of the Year, shared a similar outlook.

“For the most part, auditors are not looking for something you personally are doing wrong. They are looking for deficiencies in your procedures and practices. It’s difficult to see deficiencies when you are exposed to them regularly,” explained Belding, who has been audited once in her 20 years in the industry. “This should be a positive, especially if the audit report concludes you are running a ‘low-risk’ ship without many changes recommended. For my team, it was a positive experience.”

The process can also be a very good learning opportunity for any fleet manager, whether new or seasoned, to understand and improve their operations, according to Jeremy Giblin, controller for fleet management company Wheels Inc.

On top of that, fleet managers can learn quickly what is important to senior-level executives.

Take a Proactive Approach

Auditing fleet operations in terms of information, compliance, and recordkeeping ensures the fleet is operated efficiently and cost effectively, and also helps mitigate risk. So, why wait around for someone else to make sure your operations are running smoothly? Successful fleet managers take a proactive approach and audit their own fleet policies and themselves.

“The best way to survive an audit is to audit yourself first — before someone else says, ‘Oh, by the way, we’re going to come look at your operations,’ ” advised Butsch of Joy Global. “Set up a regular audit — whether it’s quarterly or monthly — and audit some key points. We actually look at our operations on a monthly basis. I don’t like surprises.”

A fleet self-audit examines every aspect of the organization and dissects it from beginning to end to find ways to decrease or eliminate some costs and to increase the efficiency of the fleet. It should also take a look at how the fleet department complies with its own — and the company’s — legal, business, and financial obligations.

Fleets that outsource should still have some audit metrics in place, Butsch advised. “You can actually request data from the fleet management companies (FMCs). The vast majority of fleet managers usually interact with some sort of FMC, or if they have a fuel card, there are all sorts of reports that could be done with that,” he said.

Emkay is just one example of an FMC that helps its fleet customers with audit information.

“Don’t hesitate to ask your FMC to provide assistance on the information you’ll need to gather,” said Brad Vliek, vice president – service solutions for Emkay. “Most clients do cursory audits annually, just to ensure they have vehicles in the places they think they do, drivers are legal, and usage is reasonable for the drivers’ needs. A much smaller percentage of clients do in-depth internal audits, for items such as fleet policy compliance, risk, usage (business/personal), cost verification, and fraud detection,” Vliek said.

According to Vliek, the most frequent areas audited are generally vehicle usage (comparing drivers’ reported mileage to actual), fuel purchases (to ensure they’re not filling personal vehicles), and risk (driver records and accident histories).

“Very often, the clients will ask us for information to help complete their audit. They can get almost all of what they need from our website and its tools or reports — so it is instantly available. Some clients work directly with their customer service team to provide the information.We’re happy to help,” Vliek said.

The same goes for Wheels Inc., which works in partnership with its client to understand the requirements, timelines, and information requests to help them achieve their objectives in a timely and efficient manner, according to Giblin of Wheels.

“We know that this is not a ‘one-size-fits-all’ activity. We take every request very seriously and assemble a cross-functional team within Wheels that can include, but is not limited to, finance, operations, account management, and technology,” he said.

Be Diligent About Documenting

Operating a vehicle fleet is a highly documented process. Critical records and documentation required by both the company and outside agencies (states and localities, for example) must be maintained. Registration and title records, various contractual obligations, and driver records are prime examples.

Fleet policy should always require driver records be obtained and reviewed, not only for company drivers, but also for family members authorized to drive the vehicle. A company with such a policy, but unable to produce proof of compliance, risks exposure to liability that can be very expensive when the company driver has caused an accident in which a third party suffers property damage or personal injury.

Fleet policy and procedure as well as corporate policy compliance can be measured during a self-audit. Expense reporting, accounts payable and receivable, and driver assessment, are just a few areas that can, and should, be audited.

Giblin of Wheels said the topics his fleet customers document cover basic controls, authorization, technology, payment, and billing.

According to Butsch of Joy Global,“You should be auditing your approval process and who gets vehicles, who stays in vehicles, and who eventually doesn’t get qualified for a vehicle. You’ve got to stay up on your inventory control. That has the most dramatic impact. Fuel usage is probably the next biggest piece, and then maintenance.”

Fleet managers should set up routine areas, whether it’s vehicle ordering, delivery, and charges that come through for those activities, Butsch continued. He cited fuel and maintenance exceptions as areas to really be on the lookout for.

“As opposed to focusing on the number of gallons the employee uses, we use a mile per gallon. For example, if everyone’s in a [pickup truck] that averages 14-16 mpg, but we have one guy who’s getting 8 mpg on the mileage report, that’s one way to kind of test the water on your fuel usage. As far as maintenance issues, let’s say you just take a look at what the normal PMs would cost on an annual basis for the average mileage. If a vehicle goes over a certain threshold of, for example, $300 a month in maintenance, set a trigger to ‘alarm’ if it’s too high,” Butsch said.

Personal use can contribute greatly to these exceptions in fuel and maintenance. With most personal-use problems revolving around non-compliance, a corporate policy should clearly define employee recordkeeping responsibilities and then make it a requirement to submit business and personal miles on a monthly or quarterly basis. An internal audit procedure should review drivers with not only very low, but also very high personal-use percentages.

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