Virginia dealerships may have been violating law unnoticed due to poor oversight: audit
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RICHMOND, Va. (WRIC) -- The board that oversees Virginia's motor vehicle dealerships wasn't performing inspections as it should, nor was it universally enforcing state code, per a new audit -- creating a risk of dealerships violating the law unnoticed and unpunished.
On Friday, Aug. 1, the Office of the State Inspector General (OSIG) published a report detailing the results of an audit of Virginia's Motor Vehicle Dealer Board (MVDB).
MVDB oversees and regulates both the new and used motor vehicle industries in Virginia, as well as motorcycle, trailer and recreational vehicle dealerships. In total, it oversees more than 3,200 dealerships.
The board's key responsibilities, in addition to said regulation, include certifying and licensing dealerships and salespersons, handling consumer complaints and monitoring advertising, among others.
OSIG's audit, which reviewed performance from July 1, 2023 to Dec. 31, 2024, outlines significant issues with how MVDB performs and documents inspections. There were also gaps in MVDB's enforcement when dealerships were found to be noncompliant with Virginia code.
State auditors' five major findings are summarized below:
- Random inspections were not being performed in a timely manner. Though these inspections should be performed routinely to ensure dealerships are following Virginia law, auditors found they were not, creating an increased risk of noncompliance.
- Inspections were not being appropriately documented. Many inspection records auditors reviewed were missing necessary documents, while others were completed in ways that included violations of Virginia law.
- Inspection completion was not being tracked. Auditors found that there was no way for inspectors to document when they completed inspections.
- Corrective actions were not being properly enforced. Despite having enforcement authority, auditors found that the MVDB was not utilizing that authority when dealerships were found to be noncompliant.
- There was no formal way to track MVDB's performance. No specific metrics were in place to track MVDB's effectiveness, meaning its own compliance could not be assured.
OSIG submitted a total of 11 recommendations to MVDB, with those recommendations largely centering around improving the board's policies and procedures in the relevant areas.
In an attached letter, MVDB thanked auditors for their work and said that OSIG's recommendations "align closely with [its] ongoing commitment to ensuring the integrity of motor vehicle sales in the Commonwealth and improving public trust through consistent enforcement of the Virginia code."
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Keep reading for a more detailed explanation of OSIG's findings and recommendations.
Some dealerships went years without inspection
The MVDB performs five main types of inspections: opening inspections, random inspections, board-mandated inspections, follow-up inspections and closing inspections.
As their names would imply, opening inspections are done before a dealership gets started and closing inspections are done when a dealership plans to close. Board-mandated inspections are carried out to investigate complaints brought to MVDB, with follow-up inspections required if a violation is indeed found.
Random inspections are unannounced inspections meant to "ensure dealerships remain compliant with the Code of Virginia." Per state auditors, MVDB does not have a formal requirement for how often these should occur, but its "target" is 18 months -- a timeframe OSIG said was "reasonable."
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However, OSIG found that random inspections are not reliably being performed every 18 months. MVDB reportedly told state auditors this is because it "does not have enough field inspectors."
At the time of OSIG's audit, 948 of Virginia's 3,278 motor vehicle dealerships -- about 29%, or more than 1 in 4 -- were found to have not been randomly inspected in the last 18 months. Specifically:
- 527 had not been inspected in the last 19 to 23 months
- 342 had not been inspected in the last 24 to 35 months
- 39 had not been inspected in the last 36 to 47 months
- 40 had not been inspected in the last 48 months or more
"As a result of not performing timely random inspections, there is an increased risk that dealerships in the Commonwealth of Virginia are not complying with the Code of Virginia," OSIG said. "Additionally, there is an increased risk that dealerships have ceased to operate as a business, have not reported [their] closure to the MVDB and are using dealership plates that should be inactive."
Poor recordkeeping, questionable inspector decisions
OSIG found that documentation for opening, random, follow-up and closing inspections conducted during the audit period was either missing or not sufficient.
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"As a result of not adequately maintaining the required documentation, there is an increased risk that the inspections do not comply with the Code of Virginia and/or the MVDB’s policies and procedures," state auditors said.
Documentation for opening inspections was especially problematic, though issues were still found in the other three areas.
Missing documents, details in dozens of opening inspections
State auditors took a random sample of 39 opening inspections and found that background check-related documentation was missing from 36 of them. In 28 of those cases, there was no evidence of a background check being requested. In the other 8 cases, MVDB could not produce the completed background check.
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MVDB's policies and procedures do not specify whether or not a background check's results should be kept, according to OSIG. Further, Horizon -- the system MVDB uses to track inspection results -- does not track background check completion, nor does it state whether or not MVDB reviewed a background check's results.
Initial dealer applications could not be provided for just under half of these 39 opening inspections.
Finally, for 36 of the reviewed opening inspections, MVDB did not maintain documentation of a dealership's factory warranty or its servicing agreement. The board is required under Virginia law to get these documents from any dealerships offering cars under factory warranty and to consider them when approving whether or not to allow a dealership to operate in the state.
State auditors also found that two of these opening inspections had issues with their documentation. In one case, the liability of insurance form was "not properly signed/authorized."
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In the other case, the field representative indicated that some required inspection criteria were "Not Applicable" for the dealership in question. Said representative did not document why they believed this to be the case.
Possible violations found among follow-up inspections
State auditors looked at 33 of MVDB's follow-up inspections and identified issues with the involved field representatives' documentation.
In one case, the representative said that the requirement to ensure that all of the dealership's salespersons were licensed was "Not Applicable" -- even though Virginia law requires that all salespersons at all dealerships be licensed, OSIG said. No reason for this supposed exemption was documented.
In another case, the representative did not fully document that a dealership's maintenance of employee and sales records did not comply with state law.
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In two other cases, the involved dealership requested to store some records off-site on the same day as the follow-up inspection. Though Virginia law allows for off-premises record storage, it has to be requested of the board in writing and subsequently approved. The representative did not document whether or not MVDB Headquarters approved the request in these cases.
"The MVDB’s policies and procedures do not specify if the field representative should subsequently verify the records were properly retained," state auditors said.
No proof some random, closing inspections ever occurred
Of the 39 random inspections OSIG sampled, in one case, MVDB had no record that it had occurred. State auditors later found this record under a different name, as the dealership's name had changed.
In the case of one of the 39 closing inspections sampled by state auditors, no record of it occurring could be located.
Lack of inspection tracking, no guarantee of completion
OSIG found that, on the whole, MVDB is not monitoring to confirm whether or not dealership inspections are completed.
Not only does Horizon not have the capability for such completion to be reported, but MVDB does not have any manual processes or controls to verify that inspections are completed in a timely manner.
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MVDB's own Field Representative Opening Inspection Guide states that field representatives must document the completion of opening and random inspections in Horizon within specified windows of time -- despite the fact that, as said, such a reporting capability does not exist.
Under state law, dealerships that want to close have to notify both MVDB and the Virginia Department of Motor Vehicles (DMV) at least 30 days before their desired closure date.
"The closing inspection checklist does not require the field representative to determine if the dealership provided this notice to the MVDB," state auditors said.
Even when violations were found, no action was taken
When a dealership is found to be violating state law during an inspection, MVDB will first attempt to provide what OSIG called "educational warnings" to allow the dealership an opportunity to correct the violation. A follow-up inspection is then to be carried out to determine if changes were made.
"If educational efforts do not produce the desired outcomes, the MVDB will resort to its enforcement authority," state auditors said, which includes requesting a regulatory letter.
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However, state auditors learned that, during the audit period, this enforcement authority was not used in several cases -- something potentially explained by gaps in policy.
"MVDB’s policies and procedures do not specify when a regulatory letter should be issued if non-compliance is identified during an inspection," OSIG said.
Additionally, in multiple other cases, MVDB field representatives identified issues and dealerships took corrective action -- but there are no policies or procedures "to address the remediation of deficiencies."
No metrics to show if board is performing to standard
MVDB has a memorandum of understanding with the DMV that outlines the services it provides for the state government. OSIG wanted to determine if these services were being performed properly.
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Though state auditors found "no indication" that these services were not being carried out, they learned that there are no formalized metrics that can be used to measure the quality of MVDB's provided services.
"Without formalized metrics, processes, and/or controls to monitor if services are being satisfactorily rendered, the MVDB and DMV increase the risk of key services not being adequately performed, such as delays in processing new dealership applications and closing of dealerships," OSIG said.
Auditors' recommendations, board's plan of action
State auditors' 11 recommendations for MVDB are summarized as follows:
- Implement policies and procedures that ensure random inspections are conducted every 18 months.
- Monitor field representatives and create reporting mechanisms that ensure random inspections are completed in a timely manner and in a way that complies with MVDB policies.
- Evaluate whether or not additional field representatives should be hired to ensure random inspections can be carried out in a timely manner.
- Develop policies to ensure all relevant inspection documents are retained for a reasonable period.
- Formally document and maintain records associated with inspections.
- Enhance Horizon's reporting capabilities to include inspection completion dates.
- Require dealerships to inform MVDB of intent to close 30 days in advance, as is Virginia law.
- Develop policies to document if Virginia code violations are found during inspections.
- Further train field representatives to follow MVDB's policies and procedures.
- Create metrics that can be used to measure MVDB's performance.
- Develop policies to periodically monitor and document MVDB-DMV services.
In a letter attached to the audit, Melanie Lester, the interim executive director of the MVDB, said the audit provided "valuable insight." She added that its findings "support [the board's] efforts to modernize processes, improve documentation standards and increase transparency and accountability."
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According to Lester, MVDB has done or is doing the following as of the time of the audit's publishing:
- The 18-month random inspection goal was "reaffirmed"
- Enhancements to documentation practices are underway
- Formal policies for handling violations are being drafted
- Targeted training programs are being designed for field representatives
- Policy for addressing dealerships closing without giving the required 30-day notice is being developed
- Consistent retention of inspection-related documentation is being "work[ed] on"
- Solutions to streamline recordkeeping and retrieval are being evaluated
In the attached corrective action plan, MVDB states that the majority of OSIG's recommendations will be implemented by June 30, 2026.
"We are confident that the implementation of these improvements will further strengthen the MVDB's regulatory framework and enhance our ability to serve the dealer community," Lester said in her letter. "The Board's primary focus is to educate dealers on the laws and regulations governing their industry, with the goal of ensuring they possess the knowledge necessary to promote professionalism and compliance. Consistent with our "education first" philosophy, the Board and its staff prioritize outreach and guidance to encourage voluntary compliance. When educational efforts do not achieve the desired outcomes, the MVDB remains committed to exercising its enforcement authority in a fair, consistent and professional manner." Melanie Lester, interim executive director of the Motor Vehicle Dealer Board
For more articles like this one, check out 8News' Taking Action coverage.
