Case Study Internal Control

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To: President of LBJ
Re: Internal Controls

My Recommendation
Impact of going public
Public companies, as the result of the passing of Sarbanes Oxley Act of 2002, are necessary to document their controls, assess the documented controls and have their external auditors examine their testing of controls and note down a report about the efficiency of controls surrounding financial reporting.  As a result, there will be supplementary work on designing, testing and auditing of controls if you come to a decision to go public.

High-quality practices
Having long-term employees is a real positive feature and I acclaim you for retaining talent.  The use of pre-numbered checks, pre-numbered invoices, locking up new checks, having two managers support new hires, and carrying out bank reconciliation are greatest practices and I support you to stick with these procedures.  

Weak practices and recommendations
There are a number of practices, on the other hand, that make you defenseless to errors, mutually planned and unplanned.

Segregation of duties
Employees that manage cash ought to not be involved in the bank reconciliation or invoices.  Employees in charge for purchasing should not have any payment or reconciliation duties.  By segregating duties, there is more than one person implicated in the sales and purchasing cycle as a result one person cannot carry out a fake transaction or take away cash or purchased assets without it being noticed by another employee.  

Access to assets
All employees should not have access to petty cash.  The cash must be locked and those with a key should make sure proper documentation for cash distributed to be sure it is approved.

Indelible ink machine
Printing your own checks is all right as long as you use pre-numbered check stock paper to write the checks.  Or else, you will not recognize that you have accounted for every check written.

Leaving paychecks in office
Checks should be locked until distributed...
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