As unpleasant as they can be for the subject, audits are an important component of any business operation. They ensure records are properly kept, processes, procedures, and policies are followed, and, in the end, can actually help the company operate more efficiently and profitably.

Fleet operations are often a part of an overall internal or external audit; however, such audits are generally limited to financial compliance. Fleet managers can audit a number of areas within their operations, and it is an excellent exercise to promote a smoothrunning, efficient fleet.

Audit Differs from Performance Review Fleet managers might respond to the suggestion of a self-audit by pointing to the various metrics they use to track performance and the performance reviews they perform regularly. Many times, contracts with fleet providers contain service level agreements that detail specific performance goals by which the vendor is judged. Benchmarking vehicle costs is another popular and effective way of measuring performance.

An audit differs from a performance review. Audits measure compliance, rather than performance. True enough, both processes involve gathering information measured against a standard. But an audit standard is usually policy or process, rather than expectations of performance measured against benchmarks, forecasts, or business plans.

A fleet operations self-audit might cover a number of areas for which information is gathered:

  • Information. To implement both fleet and corporate policies, various data must be obtained at the point of action. For example, fleet policy compliance requires that a maintenance invoice contain certain information specific to fleet. Not capturing all that data can skew the statistics used in a performance review.
  • Compliance. 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.
  • Records. Operating a vehicle fleet obliges a company to maintain records and documentation required by both the company and outside agencies (states and localities, for example). Registration and title records, various contractual obligations, and driver records are prime examples.

    An audit can ensure proper records are not only on file, but when they are not, an audit can also help establish controls to ensure future recordkeeping.

    Both performance reviews and audits answer the question, “How are we doing?” A performance review asks the question vis-à-vis the cost of the fleet operation and the level of service provided stakeholders. An audit asks the same question, but in relation to how the fleet department complies with its own — and the company’s — legal, business, and financial obligations.

    How to Audit Required Fleet Cost Information
    In tracking and reviewing how a company manages fleet costs, the day-to-day operation of a company vehicle generates a relatively long list of information. Fleet expense is expressed in various cost/use ratios: cost per mile, cost per time period, and cost per unit. It is measured as such for the entire fleet, for individual vehicles, classes of vehicles, geographic and business units, and more.

    To properly measure fleet cost, the myriad individual transactions that comprise each vehicle’s record must include certain pieces of information to accurately maintain the overall record. For example, maintenance and repair expense records must contain the following data:

  • Vehicle number.
  • Driver name.
  • Odometer reading.
  • Transaction date.
  • Year/make/model.
  • Total expense cost.
  • Sales tax.
  • Proper authorization.
  • Level III data, including parts and labor breakdown, and type of expense (i.e., PM, brakes, tires, engine, etc.).

    The fleet manager must first determine information critical to measuring performance for all fleet expense categories. It will differ somewhat between categories; i.e., information required in an accident report is not needed (or is irrelevant) in a maintenance transaction.

    Information sources vary; accident reports are prepared — or at least called in — by drivers. Maintenance records are most often received from a fleet provider, though occasionally they result from a transaction directly with the shop. Vehicle financial (leasing, purchasing) information comes from the lessor or dealer.

    An audit can be conducted on a regular schedule throughout the year (quarterly, for example) or once each year. A quarterly audit can be more effective and far less time consuming. For each expense category, the fleet manager pulls a sample number of invoices or records, say, every 10th transaction for maintenance, one in three for accident reports. Audit the record for the list of required data and produce statistics showing the percentage of compliance. The results will reveal not only where the information is deficient, but other shortcomings as well, such as an improperly authorized maintenance transaction. If necessary, remedial action can be taken to further minimize instances in which information was deficient.

    Audit Compliance to Fleet and Corporate Policies
    Compliance with both fleet and corporate policies and procedures is another important self-audit target. The company no doubt has an accounts payable policy requiring documentation and authorization for payment. The same holds true for fleet policy, and fleet managers should audit for both.

    For example, most companies have various levels of authority for capital expenditures. A department head might have authority up to $1,000, a director between $1,000 and $5,000, and a vice president in excess of $5,000. Various forms must be completed, and sometimes, if the requirement is large enough, a payback analysis must be completed. The self-audit should again take a representative sample of such transactions and determine first if the proper party has authorized it and, if so, that the request was properly documented.

    Internally, the fleet manager has put in place an approved expense policy and procedure, and compliance can likewise be audited. Maintenance policy usually has three levels of authority:

  • Driver. The driver is given authority up to a relatively nominal amount, e.g., $100, to authorize basic PMs and small emergency repairs (flat tire, broken hose) in a timely manner.
  • Fleet Maintenance Provider. Under most maintenance management programs, the provider has authority between the driver’s level and another level ($500, for example). If the transaction exceeds the driver’s authority, the shop is instructed to contact the management vendor for review and authorization. That authorization should be given via a purchase order or other documentable means.
  • The Fleet Department. Finally, if repairs exceed the vendor’s authority, a call to the fleet manager or other designated person is required. When the repair is costly enough, only the company, represented by the fleet manager, should make the repair/replace decision.

    The transaction record-sampling process is again set in motion, and the records are reviewed for compliance with the maintenance policy.

    Accident repair records can be similarly audited as they, too, result from a multilevel authorization policy. Further, each accident repair should have a corresponding accident report, and all replacement vehicle rentals should be traceable to a report. Here, however, auditing all incidents is possible. Most fleet accident frequency ratios hover in the 15- to 20-percent range, far fewer incidents than in auditing maintenance compliance. The accident repair audit can be installed simply as part and parcel of the overall policy.

    Records Audits Ensures Proper Legal Documentation
    As previously stated, operating a vehicle fleet is a highly documented process in which critical records must be kept. Each vehicle, whether leased or owned, begins its service with a vehicle order (either a lease or a purchase requisition). That document requires authorization at various levels: the driver, a supervisor, and the fleet manager. Following the order, several documents are generated:

  • Manufacturer’s certificate of origin or CO (sometimes called the manufacturer’s statement of origin, or MSO), the “birth certificate” of the vehicle required to obtain the title.
  • Vehicle title, the document of ownership.
  • Bill of sale.
  • Schedule A, a document provided by a fleet lessor outlining the vehicle lease terms under the master lease agreement.
  • Vehicle registration, a permit that allows the vehicle to be driven.
  • Federal odometer statement for vehicles that have been sold.

    These and other documents are critical records without which legal ownership, operation, and sale of the vehicle can be jeopardized.

    If a fleet is leased, the fleet manager can direct the lessor to provide, during scheduled audits, a faxed copy of the CO and/or title for the sample. Drivers can be asked to copy and fax their current registration, and vehicle sales records can be audited for the odometer statement and other resale documents.

    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. A self-audit reviews a sample of driver records to make certain an MVR has been obtained and, if there are violations, that actions prescribed by the policy have been taken.

    Self-Audits Can Mitigate Risk in Fleet Operations
    Overall, waiting for the standard external or internal company audit leaves the fleet manager exposed to the risk that fleet and recordkeeping policies lack full compliance. The questions, “Where is the title?” or “Where is the latest MVR for this driver?” can be chilling when a vehicle is being sold or a driver has caused damage or injury.

    Auditing fleet operations in information, compliance, and records not only ensures the fleet is operated efficiently and cost effectively, but also helps mitigate risk.