Question

Explain the unique features of management control systems in insurance companies

Answer 1

Management Control The Board of Directors makes important management decisions and supervises the execution of operations. To separate and thereby strengthen its functions of decision making and supervision on the one hand and operational execution on the other, Dai-ichi Life has introduced an executive officer system. Executive officers are elected by the Board of Directors and carry out duties assigned by the Board of Directors. Dai-ichi Life also has an Executive Management Board that consists of the president and executive officers appointed by the president and meets twice a month, in principle. The Executive Management Board discusses important management and executive issues. As of June 30, 2014 Dai-ichi Life had 13 directors (including two outside directors) and 27 executive officers (including nine officers who are concurrently directors). In addition, the Group Management Headquarters’ Meetings discuss important management and executive issues for the Dai-ichi Life Group. To further enhance management transparency, Dai-ichi Life has established a Nomination Committee and a Compensation Committee, each of which consists of the chairman, president, and outside members, as independent advisory committees to the Board of Directors. The Nomination Committee confirms the eligibility of candidate directors. The Compensation Committee deliberates on the compensation systems for directors and executive officers and other related matters. In addition, Dai-ichi Life has established an Advisory Board so that it can receive advice on its overall management issues from outside experts from a medium- and long-term perspective to further strengthen and enhance its governance. In addition to attending meetings of the Board of Directors and the Executive Management Board, Audit and Supervisory Board Members audit the execution of duties by directors and executive officers through interviews with directors, executive officers, and the relevant departments. Audit and Supervisory Board Members also audit the status of compliance, risk management in overall operations, and the operational and financial status of Dai-ichi Life and its subsidiaries. In addition, the Audit and Supervisory Board deliberates on and resolves important audit issues. As of June 30, 2014 Dai-ichi Life had five Audit and Supervisory Board Members (including three outside Audit and Supervisory Board Members)

Answer 2

features of management control systems in insurance companies are as follows:
Management Integrity

Management integrity, or the moral character of persons of authority, sets the overall tone for the organization. Management integrity is communicated to employees through employee handbooks and procedural manuals. The Management Library indicates that in addition to communicating management integrity, policy manuals facilitate training to employees. However, management’s enforcement of policies is the major indicator of an organization’s commitment to a successful internal control system.

Competent Personnel

An organization’s ability to recruit and retain competent personnel indicates management’s intent to properly record accounting transactions. In addition, the retention of employees increases the comparability of financial records from year to year. Furthermore, an auditor’s confidence in the underlying accounting records increases as he observes the reliability of the organization’s personnel. This in turn reduces an auditor’s assessment of the risk of a material misstatement in the entity’s financial statements.

Segregation of Duties

The University of California at Los Angeles notes that a segregation of duties is critical to effective internal control because it reduces the risk of mistakes and inappropriate actions. An effective system of internal control separates authoritative, accounting and custodial functions. For instance, one employee opens incoming mail, a second employee prepares deposit slips for daily receipts, while a third employee deposits receipts in the bank. The previous example prevents the opportunity of one employee to misappropriate incoming funds.

Records Maintenance

Maintaining appropriate records ensures that proper documentation exists for each business transaction. Records management involves storing, safeguarding and eventually destroying tangible or electronic records. Also, appropriate back-up deters an employee or management from creating phantom transactions in the underlying accounting records. The Environmental Protection Agency emphasizes that a good records management program reduces operating costs, improves efficiency and minimizes the risk of litigation.

Safeguards

Safeguards prevent unauthorized personnel from accessing valuable company assets. Safeguards are physical, such as locks on doors, or intangible, such as computer software passwords. Regardless of the methods, safeguards are a necessary feature of an organization’s internal control system. Many business owners instinctively protect inventory, cash and supplies. However, blank checks, company letterhead and signature stamps are items that require safeguarding that are commonly overlooked.