Cougar Collection Agency: Yakima's Finest Debt Collectors - Free Essay Example

Introduction

The Cougar Collection agency is located in Washington, specifically in Yakima. This agency employs 14 persons. It is headed by the manager by the name of Jim Blake, who also functions as a credit collector. Other main officials within the firm include one assistant manager who undertakes financing and accounting tasks, one secretary, three clerical workers, and eight debt collectors.

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The agency receives delinquent customer accounts from department stores and retail firms in Yakima. Cougar collection agency receives 25-50% of the monies received, and it has a manual system of keep records. Melvin Cooley is up to developing a new system for the firm. As such, this paper will focus on the credit system of the Cougar Collection Agency, and it will examine all the possible risks of fraud in the existing system.

Summary of The Proposed and the Existing Information System

The Cougar collection agency currently uses a manual collection system, which uses several index files. This agency contacted Melvin Cooley to design and implement new business information systems. The Cougar agency needs to move away from the manual accounting system since it is prone to a lot of fraud.

The current accounting system involves filling in and recording of financial information by hand. This manual system is mainly used by small businesses since it is cost-effective in comparison to implementing the use of information system software. The manual system is also applicable in cases where financial entries are not many.

However, the use of manual accounting for Cougar is disadvantageous because it is prone to a lot of errors, and it is time-consuming. In other words, the manual system of accounting is tedious and tiresome, which can lead to a lot of mistakes. More so, if the records are available in paper format, it is highly likely that the records can get lost or they can be damaged. Therefore, there is a need for the Cougar Collection agency to upgrade its information systems to avoid cases of fraud.

Detailed Case Discussion

In a case where the current manual system will not be revised, there are a need for detective, preventive, and corrective internal controls in the system. Internal control measures refer to procedures meant to provide reasonable assurance of the organization's goals and objectives. More in detail, the internal control systems focus on enhancing the integrity and reliability of the information, compliance with plans, procedures, laws, and regulations, safeguarding of assets, as well as accomplishment of goals and objectives of the firm. The internal control systems can either be corrective, detective, or preventive.

The internal controls are also meant to detect any irregularities or errors that may occur within the firm. These controls will help the Cougar Collection Agency detect any errors that may result from the manual accounting systems. Specifically, the corrective controls will correct any error that has been detected (Shahabuddin et al., 2011). Preventive controls, on the other hand, will involve mitigating and preventing errors from occurring at any cost. It is also worth noting that these controls are either automated, manual, or hybrid.

Still, in the case of Cougar Collection Agency, these controls will have to be manual because the organization has a manual accounting system. Finally, there is a need for detective controls that are applicable in the cases of discretionary events. Some of the common detective controls include audits and reviews of the current financial systems. Jim Lake has to understand the importance of these control systems to prevent cases of fraud in the organization.

The need for these internal control systems will be explained to Jim Lake through the concepts of risk assessment, the cultural environment, and the control activities. The cultural environment sets the tone of the organization to influence the control consciousness to provide discipline, as well as other internal components such as integrity, competence, and other ethical values. Risk assessment, on the other hand, involves the identification and analysis of risks based on the organization's objectives (Old Dominion University, 2019). The Cougar Collection agency should assess all the possible risks through departmental activities and routines to identify ways of managing the risks.

Finally, Jim Lake should be informed about the setting of procedures and policies that may ensure all management directives have been implemented. The bottom line is that control activities occur across all levels in an organization ranging from the segregation of duties, physical controls, performance reviews, as well as function reviews. By explaining the need for these control systems, the cougar collection agency will thrive even with its manual system.

Cases of Possible Frauds in Cougar Collection Agency

According to the information provided to Melvin Cooley by one of the credit collectors, it is evident that there might be possible cases of fraud. The credit collector is suspicious that most court cases end up with the debtors having to pay the debts once more. This credit collector was worried that there were debtors who did not pay, but they were credited. This assertion by the credit collector shows that there are possible frauds, which might be caused by asset misappropriation, check to kite, check forgery, thefts of cash, inventory theft as well as expense account fraud. All these cases can cause possible fraud in the Cougar collection agency.

Asset misappropriation refers to all possible fraud schemes. These fraud schemes may include check kiting and forgery, which involves faking signatures or altering payee information within the card files. Inventory theft is the other possible cause of fraud, which involves stealing from the firm by either diverting it or physically taking it. More so, possible frauds are caused by thefts of cash. The most common methods of stealing cash include skimming and return fraud, where credit collectors collude with debtors. Finally, fraud can be caused by the forging of receipts, submitting false claims, and provision of inflated expense claims.

All these cases of possible fraud can be prevented and detected through internal control by the management of the Cougar Collection Agency. The internal control activities will also involve preventing and detecting fraud through background checks, constant checks, and rotation of employees across different sections of the firm (Lomer, 2017). More so, there is a need for regular audits and reviews to check out for any possible fraud.

Conclusion

In summary, there is a need for the Cougar Collection agency to move from the manual system. This move will prevent all the possible causes of fraud and any other human errors. However, the manual systems can be made more effective through internal control systems, which involve preventive, detective, and corrective controls.

References

Lomer, D. (2017, March 15). 41 Types of Fraud and How to Detect and Prevent Them. Sight. https://i-sight.com/resources/41-types-of-fraud-and-how-to-detect-and-prevent-them/

Old Dominion University. (2019, October, 15). What Is Internal Control? Old Dominion University. https://www.odu.edu/about/compliance/internal-auditing/internal-controls#:~:text=Detective%20controls%20are%20designed%20to,occurring%20in%20the%20first%20place.

Shahabuddin, A. M., Alam, A., Azad, M. M., IIUC, C., & SMUCT, D. (2011). Internal Controls in Management Information System. Research Gate. https://www.researchgate.net/publication/321070569_Internal_Controls_in_Management_Information_System