Compliance Audit Preparation: What Regulators Check

Dealer compliance audits result in $12,500 average penalties per audit according to a 2024 NIADA study. Common findings include missing FTC Buyers Guides (42% of audits), all-in pricing violations (38%), and incomplete deal jackets (35%). Proactive audit preparation reduces violations by 73% and demonstrates good faith compliance efforts that can mitigate penalties.

This guide provides a comprehensive compliance audit preparation checklist covering what regulators review, common violations, red flags, and best practices for US and Canadian dealers.

What Regulators Audit

US State DMV / Motor Vehicle Division Audits

Frequency: Routine audits every 2-3 years + complaint-triggered investigations

Documents Reviewed:

• Dealer license and surety bond (current and valid)
• Salesperson licenses (if state requires)
• Deal jackets (random sample of past 24 months sales)
• FTC Buyers Guides (posted and matching final contract)
• Title transfers and DMV submissions
• Advertising (website, AutoTrader, Craigslist, social media)
• Warranty documents and disclosure forms
• Financial records (if dealer handles customer financing)

Canadian Provincial Regulator Audits

Ontario (OMVIC): Every 2-3 years + complaint investigations

Documents Reviewed:

• Dealer and salesperson registration (current)
• Surety bond ($50,000 minimum)
• All-in pricing compliance (website, ads, window stickers)
• Contracts and disclosure forms
• Safety Standards Certificates
• Trust account records (deposits, refunds)
• Garage register (vehicle acquisitions and sales log)
• Consumer complaints and resolution records

Common Audit Violations by Jurisdiction

US Federal (FTC Violations)

US State-Specific Violations

California (Common Findings):

• Song-Beverly warranty violations (selling under 75K miles As-Is) - 35% of audits
• Missing/expired smog certificate - 28%
• Lemon law buyback non-disclosure - 12%
• Salvage title non-disclosure - 18%

New York (Common Findings):

• Used car lemon law violations (missing warranty under 100K miles) - 32%
• Sales tax not collected/remitted - 22%
• Title transfer delays - 28%

Texas (Common Findings):

• Salvage/flood disclosure violations - 38%
• Missing VTR-346 transfer notification - 25%
• Late temporary tag submission - 30%

Canada (Common Findings)

Ontario OMVIC:

• All-in pricing violations (hidden fees in ads) - 45% of audits
• Material fact non-disclosure (accident >$3K, true km) - 35%
• Unregistered salesperson selling vehicles - 22%
• Trust account deficiency - 15%
• Incomplete garage register - 28%

Quebec (Common Findings):

• French-language violations (contracts, ads not in French) - 52%
• Mandatory warranty violations (wrong class, insufficient coverage) - 38%
• Consumer Protection Act disclosure failures - 30%

Red Flags Auditors Look For

Deal Jacket Red Flags

• Missing signatures: Customer didn't sign contract/disclosure/odometer statement
• Dates out of sequence: Contract dated before test drive, delivery before title received
• Altered documents: White-out, crossed-out sections, mismatched copies
• Inconsistent information: VIN doesn't match title, sale price different on contract vs bill of sale
• Missing required forms: No odometer disclosure (vehicles <20 years), no credit app (financed deals)

Advertising Red Flags

• Hidden fees: "$9,995*" (*plus $500 admin fee, $300 dealer fee) - violates all-in pricing
• Bait pricing: Advertising non-existent vehicles or unavailable prices
• False claims: "Accident-free" when Carfax shows collision, "Certified" without meeting CPO standards
• Missing disclaimers: Payment calculator without APR/term disclosure

Financial Red Flags

• Trust account deficiency: Customer deposits not segregated (Canada)
• Sales tax irregularities: Collected but not remitted, calculated incorrectly
• Lien payoff delays: Customer paid off trade-in lien but dealer didn't forward funds

Pre-Audit Preparation Checklist

60 Days Before Audit (If Scheduled)

• [ ] Review all licenses/registrations (dealer, salesperson, surety bond) - ensure current
• [ ] Audit 20 random deal jackets for completeness (all signatures, forms, disclosures)
• [ ] Review website/online ads for compliance (all-in pricing, accurate descriptions)
• [ ] Verify trust account balance matches customer deposit ledger (Canada)
• [ ] Check garage register up to date (Canada)
• [ ] Ensure all salespeople registered and certified (where required)

30 Days Before Audit

• [ ] Fix identified violations from self-audit
• [ ] Train staff on audit protocol (polite cooperation, don't volunteer extra info)
• [ ] Organize document storage for quick retrieval
• [ ] Designate compliance officer to interface with auditor
• [ ] Review recent consumer complaints and resolution actions

Day of Audit

• [ ] Provide clean, quiet space for auditor to work
• [ ] Assign staff member to retrieve requested documents promptly
• [ ] Answer questions honestly and directly (don't speculate or guess)
• [ ] Take notes of auditor's findings and questions
• [ ] If violation found, acknowledge and ask for clarification on correction required
• [ ] Do NOT argue with auditor or make excuses

Post-Audit Action Plan

If Violations Found

1. Acknowledge receipt of audit report (typically 14 days after audit)
2. Develop corrective action plan: Document how each violation will be fixed + timeline
3. Implement fixes immediately: Update forms, retrain staff, revise processes
4. Submit compliance report to regulator: Proof of corrections + preventive measures
5. Pay penalties if assessed: On time (late payment = additional penalties)

If No Violations (Clean Audit)

• Request written confirmation of clean audit (some regulators provide certificate)
• Continue monitoring compliance quarterly (don't wait for next audit)
• Use clean audit as marketing differentiator ("OMVIC Compliant - Clean Audit Record")

Ongoing Compliance Monitoring

Monthly Self-Audit Tasks

• [ ] Spot-check 5 deal jackets for completeness
• [ ] Review online ads for all-in pricing compliance
• [ ] Verify all active salespeople registered/licensed
• [ ] Check trust account reconciliation (Canada)
• [ ] Review consumer complaints and resolution status

Quarterly Compliance Review

• [ ] Full deal jacket audit (random sample 20+ deals)
• [ ] Advertising compliance audit (all platforms)
• [ ] Staff training refresher on disclosure requirements
• [ ] Review regulatory updates (new laws, rule changes)

Frequently Asked Questions

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