Problem
Case 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 lifestyle and drive luxury cars to work. The retention division of this company is responsible for contacting customers nearing the end of their contracts and convincing the customer to renew their contracts. Retention agents are paid a commission for each account that agrees to a new contract. Many employees consider the commission rate 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:
1) The phone system records the verbal contract extension commitment.
2) The retention agent attaches the audio recording to the customer's account in the ABC customer contract system (CCS); this acts as legal proof of contract.
3) The retention agent then updates the customer contract date information in CCS.
4) Each retention agent has a spreadsheet he or she uses to keep track of the account renewals for the month.
5) The retention agent records the customer #, date of a contract extension, and length of a contract extension in his or her spreadsheet.
6) 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 or her commission rate to calculate the total monthly commission.
7) The spreadsheets are not maintained by the supervisors.
8) To get the payments processed quickly, the supervisors have less than four hours to receive all agents' spreadsheets (usually each supervisor is responsible for 20+ agents) and submit the summary file to payroll.
9) The supervisor records the total commission earned by each agent on a summarized spreadsheet, which is sent directly to payroll for payment.
Task
A. 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.
B. What symptoms should an auditor look for to determine if fraud is occurring within the retention department?
C. 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.