Internal Control Project Paper

1812 Words Apr 13th, 2012 8 Pages
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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If any unauthorized transactions took place, the evidence is gone when the account is deleted. Errors in segregation of duties are prevalent as well. The current tasks for the Finance Coordinator position leave Dentistar open to internal control nightmares. This position is given responsibility to consolidate information and calculate amounts for manual disbursements, prepare checks, maintain regional accounting files, collect past due accounts receivable, organize financial data for audit, and assist with human resources. Beyond that he is indirectly, through severe weaknesses in internal control, given the ability to authorize refunds, issue payments for operating expenditures and affect the general ledger. These duties and implied responsibilities effectively give him custody, authority, recording, and review powers, which is a gross disregard for internal control. Moreover, all personnel can create operating expenditures instead of one or a small number of people, so auditors aren’t able to trace expenses to individuals. Adequate speed of updating information and open lines of communication are important for all companies. However, slow reactions are causing control deficiencies. Regional employees are allowed to issue disbursements that would take too long for the home office to make, but these transactions draw from accounts with an unknown balance, and they have no
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