VSC Audit Technique Flow Chart
Dealer Obligor Vehicle Service Contract?
No
Yes
Include selling price of VSC in income in year sold
Dealer/Agent reports commission income in the year contract sold
No
Insurance purchased from unrelated company?
Yes
Dealer Reserve Program?
Reinsured with PORC?
No No
Self-funded program; deduct claims as incurred
Yes
Yes
Deduct claims as incurred; accrue investment income
Insurance Amortized?
Consider PORC issues: pricing, sham, loans, dividends, etc
Stop Loss/ Excess Loss Insurance? SWIM Method Used?
No
Yes
No
No Action
Yes
Amortize premium
SWIM Method used?
No
Yes
SWIM not allowed; insurance must be amortized
No
Yes
Include selling price of VSC in income in year sold; insurance must be amortized
Include selling price of VSC in income in year sold
Verify Computations
Administrator Fees Paid?
No Action
Yes No
Dealer can pro-rate if it can demonstrate a reasonable method to estimate cost and timing of services. If not, deduct at end of contract.
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