Question

NEED SOLUTION TO THI SCASE STUDY

ABC satellite, a satellite television company, sells satellite television service contracts to customers, usually for a 24-month period. ABC satellite is a fast-growing, high-paced company created by aggressive salesmen. The company's success has made its owners very wealthy, many of them live a lavish life style and drive luxury cars to work. The retention division of this company is responsible for contacting customers nearing the end of his/her contract and convincing the customer to renew his/her contract. Retention agents are paid a commission for each account that agrees to a new contract. The commission rate is considered by many employees to be below the industry standard. Over the past year, the retention division has undergone significant supervisor and manager turnover. The current manager has not had sufficient time or understanding to properly implement controls. Additionally, the new manager has been so busy playing catch up that he has yet to hold a training or orientation meeting for his department. The current process for paying commissions to retention agents on renewed accounts is as follows: The phone system records the verbal contract extension commitment. The retention agent attaches the audio recording to the customer's account in the ABC customer contract system (CCS); this acts a legal proof of contract. The retention agent then updates the customer contract date information in CCS. Each retention agent has a spreadsheet he or she uses to keep track of the account renewals for the month. The retention agent records the customer , date of contract extension, and length of contract extension in his/her spreadsheet. At the end of each month the retention supervisor receives each agent's spreadsheet and multiplies the total retention renewals submitted by the agent by his/her commission rate in order to calculate the total monthly commission. The spreadsheets are not maintained by the supervisors. In order to get the payments processed quickly, the supervisors have less than 4 hours to receive all agents' spreadsheets (usually each supervisor is responsible for 20+ agents) and submit the summary file to payroll. The supervisor records the total commission earned by each agent on a summarized spreadsheet, which is sent directly to payroll for payment. Questions 1. Part of avoiding fraud is to create a positive work environment. Describe a few conditions mentioned within the case that could contribute to a poor work environment. 2. What symptoms should an auditor look for to determine if fraud is occurring within the retention department? 3. There are five primary control procedures or activities. List and explain which two procedures you feel would be most effective in improving the control system of the retention department. Include in your explanation specific examples of controls that should be implemented.

Answer 1

Answer(1): Conditions that contribute to poor work environment:

1. There is only verbal contract over phone, verbal contract can be breached easily, there should be written contract with proper signatures.
2. The spreadsheet are not maintained by the supervisors.
3. For getting higher commission, agents may mislead the clients.
4. There is lack of internal control, managers do not have time to understand the implement controls.

Answer(2): Auditors may look that contract are being renewed just to get higher commission, are the customers being benefited with the services? Are Retention department getting fake orders to get the commission? Do their balance sheets and income statement show true, fair and reliable picture of company or not?

Answer(3): Control procedures are as following:

Accounting control- This is the control procedure that is implemented to ensure the reliability of financial statements. Accounting control system checks the accounting records and matches the journal entries with the actual vouchers. There should be no window dressing, forgery, falsification in the financial statements. They show the true and fair picture of company.

Internal control- It is a system, that control many things in business. It provides assurance that company's objectives are being achieved while complying with the ethics, policies, laws and regulations. It checks whether company is following laws or not. It controls the information system, cash management system, operations of business etc. It assists the company's auditor. Internal control system ensures the optimal utilization of available resources.