MANAGEMENT CONTROL SYSTEM

CASE STUDY: NEW JERSEY INSURANCE RESPONSIBILITY

NAME: SWAPNIL SURESH AVHAD

ROLL NO: N20283002

CASE ANALYSIS: The law division of New Jersey Insurance Company was responsible for all law issues
regarding to the company’s operation. William Somersby, the head of the law division could freely exchange
or comment on management decision under the legal implication with top management. There were 5
sections under the Somersby. Specifically, this case only referred to Individual Loan Section and Corporate
Loan Section.

The individual loan section was responsible for loan processing for individuals. Normally, the loan
instruments, such as independent companies, financial institution sold a number of loans to NJIC, then NJIC
resold these loans to individual borrowers, the company did not make loans directly to borrowers.
Investment division, although did under the law division, support the loan processing. Its main job was to
establish the terms of loans. Firstly, independent companies submitted an offer to sell their mortgage loan.
Then the investment division would determine whether NJIC would accept the loan based on its own
standards. Once approving the proposed loan, it would transfer all the information from independent
companies to law division.

Individual loan section performed the legal work, including loan security check, to ensure the NJIC’s interest
protected. The section was also divided into three attorneys responsible for different geographical
section around the world, and two rear services support these three attorneys. Besides, mortgage examiners
were another important group of this division, they were intensively trained to check and approve certain
loan transactions under the supervision of lawyers. As their job was repetitive, they were required to raise
their workload. At the same time, the work of individual examiners would be evaluated by supervisor, and
the judgment had to be exercised in applying the certain standard.

discussed with the outside counsel. By this way, the company established a working partnership with outside
law companies. Regarding to the control procedure, every week a staff conferences was held, re-
assigning the workload to attorneys, raising and solving individual problems, exchange experiences,
and developing policy on different matters. Additionally, each attorney submitted its work assignment report
to the section head, briefly reporting their current work status. So the head of section could grasp the
progress of this section, and the ability of each lawyer. Referring to the data for the budget report, obviously,
individual loans section showed over budget, while the corporate loans section showed under budget. The
employee costs in individual loan section indicated a significant portion in over budget, this mainly because
of its total number of employees was occupied 2/3 of the total division employees. In contrast, for corporate
loan section, the main under budget was because of the low employee cost, that is mainly due to the outside
counsel played an important role in assisting law activities. As the heavy workload the corporate section
took, it is suggested that the employees in individual loan section should have special train regarding to
corporation loan and switch to corporation loan department.

1. In what ways does Mr. Somersby control the operation of the sections of his division? In what ways does top
management control the operation of the law division?
Answer: Mr. Somersby controls the operation of the division by requiring reports from each section of his division.
Which such reports he was able to monitor the performance as well as the expenditures of each section. The law
division has about five sections to which two of them seem more crucial than the others. This is because such
section handle accounts that can either make or break the financial status not only of their division but of the
company as well. Because of the importance of such sections, Mr. Somersby conducts conferences with the
sections in order to determine if there are any problems during their operation and to prepare for future
developments. The top management controls the law division by monitoring the financial standing of the division
through the required reports that they acquire. They screen discrepancies and questionable differences in cost
through comparison with the division’s previous financial report. They are able to do because of the established
standard they have set from their years of experience [most of the employees have been retained due to their
costly training. Thus, hiring of new employees are avoided unless needed] and frequent transactions in their
“routinary” operation. They require the division to set budgets, and monitor their projected costs from
their incurred cost. The same goes to Mr. Somersby. When large deficits are detected they questions
such occurrence in order to justify the incurred cost or to make certain actions for the situation to
desist.

2. What possibilities for improving control, if any, do you think should be explored?
Answer: Since budget plans seems to be crucial in their company, they should try to establish more definite
parameters for their reports especially for the corporate loan division. They should incorporate the factor of TIME
with their reports. For doing almost “routinary” transactions and for handling such situations for a longer period
of time, the examiners should have a clearer gauge as to how long their transactions would be. By sending reports
on a timelier manner they would be able to have more reliable figures for their budget estimates. As for larger
accounts [like those of the corporate loans], they should also try to consider not only outsourcing on the legal
matter but for investment matters as well. They could consider hiring consultants that have a larger network in
these matter in order to have a broader reference in the evaluation process. These financial experts might be able
to help them more in accessing mortgages, company and individual net worth and the market standing of any
investment. With this, just like on legal matters, these too can be a form of marketing, because they can claim to
have a more reliable service because of the presence of financial experts that are not tied with their company.
[Thus unbiased reports and projections]. They should also coordinate with the government in some cases so that
 they could keep track and prepare for any policy changes in their area that might affect the prices of their resources
but that of their needed inputs as well.

3. As Mr. Montgomery, what comments would you make and what questions would you ask Mr. Somersby about
the performance of the two sections of the law division for the first six months of 1987?

Answer: As Mr. Montgomery, my comments for Mr. Somersby would be as follows: There have been huge
deviations on the projected budget and the actual budget of the law division. More particularly, the individual loan
section has incurred most of those deviations. From the figures, it seems that the corporate loan section had lesser
number of transactions compared to their previous year. It seems that the individual loan section has employed
an outsider which is different because their division has carefully trained and well experienced examiners, and has
not required to have one from the previous years. The questions would be as follows: What are the reasons of
the over budget? What are your plans in order to prevent your division from incurring these deviations? Why was
an additional labor for the individual loan sections made? How come the budgeted number of employees was 26
and the actual number of employees was 24? Since, employing additional labor for the individual loan section
happened, is there a need to employ a new permanent worker? Were some of the people from the corporate loan
section laid off? Are there any management problems in the corporate loan section? Have you considered
employing financial experts instead of outsourcing them? What would become of the division then?