Board of Directors FR: Renewal Overcharges Essay

Pages: 6 (1646 words)  ·  Bibliography Sources: 0  ·  File: .docx  ·  Level: Corporate/Professional  ·  Topic: Business

Board of Directors

FR:

Renewal overcharges

(1) in the course of a routine investigation on another matter, it has been uncovered that many of our repeat customers have not been properly credited with the early pay discount to which they are contractually entitled. The company has been, in effect, overcharging some of our customers for several years.

(2) This issue is directly related to our company's compliance plan. In basic, the compliance plan was developed with the objective of ensuring that our business practices are fair and that our risk of adverse legal action or negative publicity is minimized, as these are considered to be damaging to our business interests. The compliance plan is implemented by means of audits conducted either by the compliance department, the internal auditors or the outside auditors.

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When an issue of compliance is raised, the procedure takes three steps. The first step is to undertake a preliminary investigation. This has occurred, and it has been determined that a potential compliance issue exists. The preliminary investigation uncovered some basic details that will be related in this memorandum, but the full details of the issue are not yet known. The second step is to call a meeting of the Board of Directors, at which time the Board will be briefed on the basics of the issue. The Board will have the opportunity to provide some guidance with respect to further action. The third step is that the Compliance Department will make a determination whether or not to pursue further investigation. This decision will be made with the Board's recommendation in mind, but the Compliance Department reserves the right to go against the Board's wishes, and has been granted the autonomy within the company's charter to do so.

Essay on Board of Directors FR: Renewal Overcharges (1) Assignment

The compliance plan is implemented according to a full stakeholder view. The objective of the compliance department when implementing the compliance plan is first and foremost to establish the facts of the case. Only after the facts have been established will the compliance department tender a finding to the Board of Directors. The finding will include a stakeholder analysis so that the Board has the information required to make its best decision with respect to guidance. The preliminary stage of investigation where we are today is primarily informational in nature, and is not intended to either open or close the issue.

The Board should be reminded that the Compliance Department has been granted autonomy within the organization to conduct investigations. If there is suspicion of malfeasance, error or other negative action on the part of any member of the company, it is illegal for information relating to that activity to be destroyed. As such, the Compliance Department will expect full cooperation from the Board, the executive and the lower-level employees of the company on this matter. It is also worth reminding the Board that the Compliance Department is bound by a strict code of confidentiality. No word of the investigation, its purposes, or its finding will ever be leaked to either internal or external parties. The findings of the Compliance Department are only to be disclosed to the Board and if relevant to the senior executives of the organization as well.

(3) the facts of the case as we know them are as follows. For many years, the company has offered a 10% discount on early payment for our customers, and this discount is applied to the renewal contract. Most of our clients are on renewal annual contracts and are therefore eligible for this discount. The preliminary investigation conducted by members of the Compliance Department found that many customers did not receive the discount. Other customers did receive the discount -- it was unevenly applied. This means that a significant number of our customers have been overcharged for our services, possibly for several years running.

The root cause of the issue is as yet uncertain, pending full investigation. The preliminary investigation focused on two key areas: sales representative training and bookkeeping. It was found that the sales representative training program as written does include mention of procedures regarding the discount. It should be noted that records show any individual sales representative will have customers who received the discount and customers that did not. This implies that the problem may not at the sale rep level. It was found that the bookkeeping department does not automatically credit customers' accounts when there has been early payment for cash. The system requires a manual entry. This is believed to be the primary source of the problem.

A further issue is the current health of the company's record-keeping. The bookkeeping department's record-keeping has been found to be deficient. The compliance department under the previous compliance officer left behind a collection of incomplete and poorly-maintained records. In addition, the auditing department has never examined the division that handles the homeowner contracts, again weakening the company's compliance system.

The remaining facts of the case have not yet been established. The precise source of the error is only speculative at this point. The number of customers affected and the dollar value of the problem has yet to be determined. It is far too early to judge if the error was the result of negligence or intentional act; it is too early to even speculate. What we know is that there has is an ongoing, systemic error.

(4) There are a number of risks associated both the error and the underlying compliance and bookkeeping issues. The most critical risk is the legal risk -- the company is contractually obligated to pay the discount. Any customer who finds that they have not received the discount is entitled to legal action against us, and pending the emergence of mitigating facts it looks as though the customers would win said legal action. This issue would also have marketplace implications. If the issue emerged publicly, we would lose the faith not only of the customers who did not receive their discounts but all of our other current and potential future customers as well. Honestly and integrity are a big part of our business, as we foster long-term relationships with our customers. We stand to lose substantial market share if it is found that we have cheated our customers, even accidentally.

In addition, there are risks associated with the underlying issues. This issue highlights faults within our compliance system and our internal control mechanisms. Regardless of the ultimate cost of this individual issue, it appears as though our system is unable to detect issues of this nature, as it was only by random chance that this error was discovered. The next problem we have could be much more severe. The prior compliance administration increasingly appears to have lacked fundamental competences and/or the resources required to do the job. Regardless of the outcome of the issue with the discounts, it is evident that our compliance and internal control mechanisms need to be improved significantly.

(5) the compliance department is recommending the following actions. The first is a further investigation into the discount issue. We have a contractual obligation to our customers that we need to meet, and we could face significant legal action for breach of contract. If a legal investigation arises and we face further scrutiny into our compliance, sales, or bookkeeping practices, we could become even further exposed. The opinion of the compliance department is that conducting a full investigation is the best risk management approach to this situation. A decision about the findings of the investigation need not be made until the investigation has been completed. It will also help the Board when making a decision to understand the degree of exposure that we face -- something we do not know on the basis of the preliminary investigation.

The second recommendation is to receive an increase in funding for the compliance… [END OF PREVIEW] . . . READ MORE

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