Accounting errors happen. But when they go undetected, uncorrected, or—worse yet—intentionally concealed, the fallout can be severe. Car dealerships are no exception to this rule, and the recent story of a Macy’s employee’s accounting misstep should serve as a cautionary tale for dealer principals and general managers alike.
The Macy’s Misstep: A Warning for All Industries
On December 11, 2024, The New York Times reported that Macy’s had to downgrade its quarterly earnings after uncovering accounting errors related to the costs of small package deliveries. A single employee, entrusted with recording and tracking these expenses, not only made errors but also attempted to cover them up. The financial impact was substantial, leading to a public loss of confidence and a decline in Macy’s stock price.
Macy’s had to revise its accounts going back three years and lower its forecast for profits this year. The employee hid $151 million over the three year time span. $151 freakin’ MILLION DOLLARS.
So what happened exactly with the Macy’s accounting error?
Macy’s confirmed that a single employee, who is no longer with the company, “intentionally made erroneous accounting entries and falsified underlying documentation, to understate delivery expenses” from late 2021 through September 2024. Macy’s said it was taking measures to improve its financial controls, including “re-evaluating the risk of employee circumvention of controls.”
“Our focus is on ensuring that ethical conduct and integrity are upheld across the entire organization,” Tony Spring, the chief executive of Macy’s, said. Department stores like Macy’s are struggling all over with fewer people going to malls, so this revelation adds insult to injury.
While Macy’s seems to not be providing further details, one thing is clear: inadequate internal controls and insufficient oversight allowed this issue to fester. The ripple effects are felt on Macy’s financials and its public reputation.
Why This Matters for Car Dealerships
Car dealerships, like retail giants, handle large volumes (with large sums) of financial transactions daily. From new and used vehicle sales and factory incentives, to service repairs and warranty reimbursements, to large wholesale parts operations and mobile repairs, dealerships operate in a high-velocity environment where accounting accuracy is paramount. But what happens when the controls fail? Here are some key risks that dealer principals, GMs and controllers need to be aware of:
1. Financial Losses and Profit Erosion
When errors go undetected, dealership profitability takes a hit. Undetected miscalculations, failure to reconcile accounts, lack of an error mitigation process, hiding mistakes and outright fraud often result in painful write-offs and unhappy customers. As we witnessed from the Macy’s debacle, even “small” mistakes, when repeated over time, can drain significant sums from the bottom line.
2. Reputational Damage
Just as Macy’s faced reputational fallout, dealerships risk losing credibility with consumers, OEM partners, lenders, regulatory agencies and auditors. Transparency and financial stability are essential to maintaining these relationships. Negative publicity from financial mismanagement also often deters potential buyers.
3. Legal and Regulatory Consequences
Dealerships are subject to financial audits and compliance reviews by manufacturers, lenders, and regulators. Accounting errors, especially if they hint at fraudulent activity, could trigger audits, fines, or the loss of preferred lender status. Worse, intentional misstatements can lead to legal action.
4. Strained Lender Relationships
Floorplan lenders and other financing partners scrutinize dealership financials to assess creditworthiness. Poor accounting practices can lead to higher borrowing costs or loss of access to credit. For dealerships that rely on floorplan and other financing, this risk is especially dire.
5. Loss of Internal Trust and Employee Morale
If employees see others “getting away” with errors or mismanagement without consequences, it can breed a toxic work environment. Trust erodes, accountability weakens, and morale plummets.
In contrast, a dealership that enforces strong controls fosters a culture of integrity, accountability and professionalism.
How Dealerships Can Avoid a Macy’s-Style Debacle
To prevent financial missteps from spiraling into full-blown crises, dealership GMs and controllers should prioritize strong internal controls. Here’s how to do it:
1. Segregation of Duties
No single employee should control an entire financial process from start to finish. In Macy’s case, one employee had too much influence over expense recording. In a dealership, ensure separate individuals handle transaction initiation, approval, and reconciliation.
2. Regular Reconciliations and Audits
Routine reconciliations of bank accounts and various accounting schedules allows you to catch errors before they become nightmares. Monthly, quarterly, and annual audits—whether internal or third-party—create an extra layer of accountability.
Choose your advisors wisely. This is where an on-demand automotive CFO can come in handy. They provide the expertise of a full-time CFO without the overhead costs. This model ensures that you receive high-quality financial guidance at a fraction of the traditional cost, allowing you to focus on driving your business forward.
Automotive CPAs are not created equal, which means wide swings in the client services they perform. Some provide more in-depth reviews while others are happy to take what your accounting team gives them and simply file your tax return.
3. Use of Technology and Automation
Accounting software and dealership management systems (DMS) can automate tracking, flag anomalies, and generate error reports. Investing in modern automation reduces manual entry errors, enhances visibility and can often help discover cover-ups.
Every store’s DMS has built-in failsafes but I’ve witnessed many dealers rely solely on them, as though they are infallible.
Any software solution should be viewed as a tool to support processes, not the process itself.
4. Employee Training and Awareness
Employees who understand the impact of accounting accuracy are more likely to follow procedures. Training sessions on proper accounting practices, ethical behavior, and the “why” behind controls improve compliance.
A few months ago, I wrote about the fact that car dealership accounting skills don’t grow on trees. In that article, my esteemed colleague, an automotive CPA, echoed what I’d been noticing: that there is a growing concern within the industry about the aptitude of today’s dealership controllers. He said:
The shortage in qualified controllers is the next great crisis. We will be talking about it like techs soon…not sure why we aren’t already.
This shortage of qualified controllers means that not everyone who has the title of controller, actually has the skills and experience to manage a dealership accounting department, especially a dealership that sells more than 60 cars per month and/or serves more than 25 customers per day in service.
Training, coaching and/or mentoring is crucial to avoid anything like the Macy’s debacle.
5. Whistleblower Protections and Anonymous Reporting
Create a system where employees can anonymously report suspected errors or fraudulent activity without fear of retaliation. Had Macy’s employee had such a channel, the outcome might have been different.
In my own experience as a dealership CFO, I made an enormous effort to develop and nurture the relationships I had with my peers and subordinates. Many of them felt very comfortable speaking with me about delicate matters, knowing that it was a safe space.
6. Leadership Accountability
The role of dealership leadership cannot be overstated. GMs and controllers must lead by example, upholding financial integrity and demanding accountability. This means asking tough questions, conducting spot checks, and refusing to overlook “minor” discrepancies. Stick to your system, and enforce deviations from processes.
Take Action Before It’s Too Late
The Macy’s incident is a sobering reminder that one employee’s actions—whether through error or intent—can have a massive financial impact. For car dealerships, where margins are tight and cash flow is king, the consequences of poor accounting controls can be even more severe.
Don’t wait for an error to surface. Strengthen your controls, audit your processes, and ensure no single employee has unchecked access to your financial records. By taking proactive steps now, you’ll protect your dealership’s profitability, reputation, and long-term success.
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