View Full Version : How to Find Hidden Income [Under the Table Cash]

12-16-2004, 05:35 PM
I know a guy who has been shut out of an auto repair business partnership and wants his fair share. The offending partner is keeping the business up. The business is likely breaking even "on the books" but we suspect the offender is taking cash under the table .

How can we find out how much cash is flowing through the shop?

How do the IRS, child support authorities, and people in this situation uncover unreported cash income?

12-16-2004, 05:45 PM
BTW, I mean:

1. Something less costly than Receivership
2. Assuming the cash is not being deposited in a bank account

12-16-2004, 05:57 PM
I think the first step would be to hire an outside auditor to examine the books, and compare revenues, etc. with repair orders to find if any work is being done but not recorded. If the partnership is being dissolved then he has every right to request this to determine if he is being treated fairly.

Gary T
12-16-2004, 07:13 PM
Some (maybe most, but almost certainly not all) of it may be traceable if parts were used that were billed on charge accounts with the parts sources. Start with the monthly statements from the parts suppliers. Then find every individual invoice listed on those statements, and reconcile those invoices with the repair orders. Also examine the shop's checkbook for payments to parts sources that weren't on a charge account, and find the corresponding invoices. A part on a parts invoice that is not reflected on a customer repair order would suggest that either the repair order has been hidden/destroyed, or was never written in the first place.

With that as a starting point, some important notes:

Some parts may legitimately not be on a repair order, e.g. shop supplies or stock such as antifreeze, parts for an employee's personal car, or parts that were returned. Still, every part charged or purchased had to go somewhere, and should be satisfactorily accounted for.

A repair order that was written but not put on the books may have a copy in the customer's file. The only way I know to find those is to go through every item in every customer's file and reconcile to the shop's income statements.

If a written repair order is not found, it's virtually impossible to know what was charged, but a rough approximation can be made from the cost of unreconciled parts. Most auto repair shops' income is roughly split 50/50 for parts and labor in the big picture, so if you know what was charged for the parts (retail to the customer) you can figure about the same amount was charged for labor. Shops mark up parts from their cost, but the mark-up can vary widely from region to region, from shop to shop, and even within a shop depending upon the type of part. Typical mark-ups range from 60% to 100% in my experience.

12-16-2004, 09:47 PM
Observe the lot. If ten cars go through the lot on Monday, and fifteen on Tuesday verify this with a check of repair orders. If the books show 5 and you counted 25 the books have been cooked.
Further more if a spot check shows a problem, sitting across the street, noting licence plates, and taking pictures will force the ex to put everything on the books.

12-17-2004, 01:25 PM
You might also try (circumspectly) talking to employees of the business, or better yet, ex-employees. If there's a lot of off-the-books business being done, the employees will probably know about it, since they'll have to participate in the shenanigans involved (not creating invoices for certain jobs, etc.).

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