Chapter 3 Case Study #3

ABC satellite, a satellite television company, sells satellitetelevision service contracts to customers, usually for a 24-monthperiod. ABC satellite is a fast-growing, high-paced company createdby aggressive salesmen. The company’s success has made its ownersvery wealthy, many of them live a lavish lifestyle and drive luxurycars to work. The retention division of this company is responsiblefor contacting customers nearing the end of their contract andconvincing the customer to renew their contract. Retention agentsare paid a commission for each account that agrees to a newcontract. The com-mission rate is considered by many employees tobe below the industry standard. Over the past year, the retentiondivision has undergone significant supervisor and manager turnover.The current manager has not had sufficient time or understanding toproperly implement controls. Additionally, the new manager has beenso busy playing catch up that he has yet to hold a training ororientation meeting for his department. The current process forpaying commissions to retention agents on renewed accounts is asfollows:

• The phone system records the verbal contract extensioncommitment.
• The retention agent attaches the audio recording to thecustomer’s account in the ABC customer contract system (CCS); thisacts a legal proof of contract.
• The retention agent then updates the customer contract dateinformation in CCS.
• Each retention agent has a spreadsheet he or she uses to keeptrack of the account renewals for the month.
• The retention agent records the customer #, date of contractextension, and length of contract extension in his or herspreadsheet.
• At the end of each month the retention supervisor receives eachagent’s spreadsheet and multiplies the total retention renewalssubmitted by the agent by his or her commission rate in order tocalculate the total monthly commission.
• The spreadsheets are not maintained by the supervisors.

• In order to get the payments processed quickly, the supervisorshave less than four hours to receive all agents’ spreadsheets(usually each supervisor is responsible for 20+ agents) and submitthe summary file to payroll.

• The supervisor records the total commission earned by eachagent on a summarized spreadsheet, which is sent directly topayroll for payment.

1. Part of avoiding fraud is to create a positive workenvironment. Describe a few conditions mentioned within the casethat could contribute to a poor work environment.

2. What symptoms should an auditor look for to determine iffraud is occurring within the retention department?

3. There are five primary control procedures or activities. Listand explain which two procedures you feel would be most effectivein improving the control system of the retention department.Include in your explanation specific examples of controls thatshould be implemented.