LJB Company, Internal Control Review
ACCT-504 – March 2013
Table of Contents
I. Sarbanes-Oxley Requirements
II. Internal Controls – Correctly Implemented
III. Internal Controls – Not Correctly Implemented
The president of LJB Company, a local distributor, requested our company to evaluate their system of internal controls because they are planning to go public in the future. The President wants to be aware of any new regulations required of his company if they do go public. Understanding the rules and regulations which need to be followed is very important because if not followed the “potential penalties for ...view middle of the document...
Any information reported must be explained in language that the average investor can understand, so that people can make an educated decision about investing in a company based on the most up-to-date data.
5. Refrain from altering financial documents: Criminal penalties on anyone who falsifies or alters financial documents or otherwise tampers with records and documents when the documents are to be used by a government investigator.
Internal control activities are a way for companies to make sure they are running properly and their checks and balances are being checked. The internal controls involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance.
The things I see LJB Company doing well are listed below. Not all of these fall under the internal control activities but I would say item 2 and 3 fall into the adequate documents and records. The others do not fall into any of the internal control activities
1. Faith in their long-term employees. Although this is a great thing to have in any company, it is not an official internal control. As well just because the employee has always been “faithful” doesn’t mean they always will be.
2. Using pre-numbered invoices. This would be a great change in the company and would fall under the “adequate documents and records” category.
3. Purchasing an indelible ink machine to print their checks. Again this would fall under the “adequate documents and records” category and is highly recommended. It would be a great investment for the company.
4. Both interview and approve all of the new hires. This would fall under “independent checks on performances.” Although having two separate people interview a potential employee is a good checks and balance, by not performing a background check leaves the company vulnerable to hiring the wrong type of person. This has happened in the past as stated by the president earlier.
I do recommend purchasing an “indelible Ink Machine” for printing checks. The ink used in these machines cannot be erased or changed in any way. This would insure once the checks are printed no one would be able to modify...