Presented in this evaluation of LJB, I would like to address what internal control regulations this company will need to follow in its plan to go public including standards set forth under the SOX Act, what areas the company has successful internal controls in place, and what departmental processes need more efficient internal controls put in place. By doing so, I think you as president can make LJB a more secure company and avoid many of the risks it is taking leading to fraudulent activity.
Internal Control Requirements:
My first area of concern when analyzing the LJB company internal controls, is what is going to be required for this company to become pubic and listed ...view middle of the document...
As I continue this evaluation, I will touch on where each of these controls needs to be put into action in effort to remedy fraudulent acts and ill-advised risks that are found throughout this company.
Recommendations on Internal Controls to Maintain:
Looking at the company’s current internal controls, there are some processes that I believe to be efficient and should be maintained. In reference to the internal control principle of establishing documentation procedures for your company, I agree with your accountant’s procedure of using pre-numbered invoices and recommend you approve their request for the indelible ink machine to print checks. By using pre-numbered invoices, the company will be able to track any fraudulent cash disbursement in the event that invoices go missing. The use of an indelible ink machine will prevent any tampering of printed checks as the ink will not be able to be erased or altered to affect the amount of what the check was cut for. The practice of storing the company paychecks in a secure safe is also a positive internal control. Although, I do believe that this should be modified to reflect how the accountant stores the paychecks on payday. I will discuss this further in my recommendation for changes.
Recommendations on Internal Control Changes:
After further evaluation of the current internal controls within LJB, I have put together many purposed changes to ensure compliance with the SOX Act and to improve the efficiency of the company’s operations. To start off, I understand the company’s confidence in the experience of its employees and implore your reliance to complete multiple roles within the company. Although in order to avoid fraudulent activity, we need to implement the internal controls of establishing responsibility and the segregation of duties. It is not an effective control to have your accountant taking both roles of the treasurer and controller. There is too much room for fraudulent activity to take place when one person is allowed to purchase, pay for, and record supplies purchases in the banks reconciliation. Segregating these responsibilities is a more efficient control so that the company can define discrepancies in purchasing records. It is my suggestion that LJB assign one employee the task of purchasing supplies, another employee the responsibility of receiving and paying for the supplies, and another put in charge of receiving checks to be recorded into the monthly bank reconciliation (Net Places). This eliminates the temptation of employees from creating fictitious invoices, taking kickbacks for supply orders that were never received, and from recording transactions in the bank reconciliation that are actually in disagreement when comparing the bank and company balances (Paul D. Kimmel, 2013).
Staying along the lines of the establishing responsibility, this company needs better internal controls on handling petty cash. At the moment, too many people are allowed access to the...