4 Steps to Get Your House in Order for Service Warranty Audits

Service warranty audits are back – some dealers say with a vengeance, according to a recent Auto News article. Others consider the return of audits, now that the pandemic has eased, to be business as usual. Why do some dealers find it easy to stay on top of compliance while others panic when a warranty auditor sends them notice?

I’d suggest it’s largely a matter of process and document storage. We all know the warranty-claims process is still very paper-intensive – which can lead to lost documents. Dealers who don’t have an iron-clad process for electronically managing their documents are putting themselves at risk. As a dealer once told me, “They might as well grab a gallon of gasoline and burn it all.”

To further complicate matters, these past 15 months have caused a total disruption in day-to-day operations: people have left the dealership, COVID-precautions have changed long-standing processes, many dealers have tried to implement electronic processes to compliment the overall document process, with varying degrees of success. I think it’s safe to say manufacturers understand the situation and may be looking to capitalize on it.

Manufacturers know these changes have increased the likelihood things are slipping through the cracks. The increase in audits are the natural result of that likelihood. If you aren’t prepared with a document management process that has strong checks and balances, you are setting yourself up for failure.

You can get your house in order and turn warranty audits into no big deal. Here’s what I suggest:

1. Train service employees and hold them accountable. You wouldn’t take a road trip without a map. You cannot hold your team to a process if that process isn’t written down and clearly documented. The warranty process is complex and service and parts employees must be properly trained on documenting hours and repair work. Just one employee not following the process could cost your dealership thousands of dollars. Properly trained employees should have no problem following a “no exceptions” process for paperwork and for warranty work. It’s fair and prudent to tell new hires that committing warranty fraud or performing unnecessary work will get them fired. No warning and no second chances.
2. Invest in electronic document storage. Overflowing filing cabinets and stuffed document boxes are a recipe for disaster. Just one missing document could cost your dealership an expensive chargeback. Web-based software that allows you to scan and store documents electronically is a simple solution with a big payoff. All documents are instantly available with a quick search which allows you to compile required auditing materials in seconds instead of hours.
3. Hire a professional scanning operator. An electronic storage system is only as good as what you put into it. The old adage holds true: “Garbage in, Garbage out”. Even the best storage system can’t compensate for sloppy scanning. It’s well worth the time and money to hire a detail-orientated professional and invest in training because proper document scanning is the linchpin of a successful storage program. The role has a direct impact on your bottom line and dealership health and should not be assigned to a low-level clerical employee. You can find tips for hiring a Scan Operator in my previous blog about the most important dealership hire in 2021.
4. 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 task him or her with regularly (weekly or monthly) spot checking claims and pulling a few job cars to check for complete, accurate information. I’d recommend this person not be the service manager or warranty administrator to keep the process honest. You’re also adding to this person’s workload so consider extra compensation to make the job attractive and motivate proper actions. One idea is to award a bonus for a clean audit.

After mostly shelving the process in 2020, warranty audit visits are back. While automakers may be less forgiving this time around, that doesn’t mean you need to panic. Follow the four steps above to get your house in order and it will be business as usual when an auditor shows up at your door.