Internal Control Project Paper

Words: 1814
Pages: 8

Introduction of Dentistar and the problem Dentistar, Inc. was formed in 1985 to provide dental and orthodontic services to subscribers of their prepaid dental plans. This report examines the western region’s office, located in Los Angeles, and its issuance of excessive manual checks that resulted in multiple bank overdrafts. Results indicate that only minimal efforts have been made for internal control measures in this office and companywide, and that weaknesses have allowed the Finance Coordinator to embezzle funds. There are many issues to be addressed, and several remedial actions to be taken to prevent these types of losses going forward.
Strengths in the internal control system Dentistar’s internal control system has some
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Budgets are prepared for an entire year at a time instead of monthly or quarterly, using simple growth and inflation factors. Most variables cannot be determined that far in advance and budgets must be revisited more often. Additionally, employees have no input or involvement in decision-making. They have less commitment to goals that are in the interest of the company, and are more likely to act unethically when opportunities to do so arise. Lastly, financial closing and the methods for financial review are problematic. Regional management has no involvement in processing revenues and expenses, such as payroll and cash receipts that they directly affect. Involving these members in the closing process is important to clue them into opportunities for improvement and possible internal control issues. Also, corporate accountants only compare uninformative check stubs to the bank statement when reconciling, not making sure that expenses are legitimate in any way.
Recommendations for procedural changes to correct weaknesses There are a multitude of ways that the cash disbursement process is flawed, and Dentistar must take steps to improve its internal control measures or these problems will be an even greater detriment to future operations. They should commission a company to create an internet portal, put audit provisions in place, reevaluate budgeting