Internal Control Case Study

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LJB Company’s Internal Control
Recommendation Report
February 2012

Prepared for:
LJB Company
Finance Department

Prepared by: Cauretta Bell

Recommendation Report 2012
It is my immense pleasure to report and evaluate the findings of the internal control procedures to the President of LJB Company regarding recommended changes for the organization to utilize internal control requirements. We will provide useful recommendation so that LJB Company will be fully prepared to go public in the near future. Being completely open to our recommendation, the President of LJB Company can expect the organization proficiency level of internal control will secure assets, improve the trustworthiness of the accounting records, amplify efficiency of operations, and guarantee compliance with laws and regulations. In order to accomplish this success, LJB would need to apply five primary components that are consistent of control environment, risk assessment, control activities, monitoring, information and communication. The internal control activities establish simple principles such as: segregation of duties, establishment of responsibility, physical controls, human resource controls, independent internal verification, and documentation procedures. The activities presented are the backbone in a company’s efforts to identify and address the risks a company faces, such as fraud. Segregation of Duties

The most indispensable internal control system would be segregation of duties. With LBJ main purpose going public the company would benefit from Segregation of duties should the President correct the violated principle due to the individual responsible for the record keeping of this asset should be separated from the physical custody of that asset. The trusted account is the individual that presently retrieves all the paychecks on payday and the checks are placed in the safe in his office after the account is gone for the day. Evaluating this method the accountant has adopted I would have to commend your account for keeping confidential information secure with he has left for the day. Sirens are being awakened due to there is one person that serves as treasurer and controller with streamlines many of the company’s processes. The accountant also purchases all of the supplies and pays for the purchases. He also receives all the checks and completes the monthly bank reconciliation. The example that the President of LJB provided the accounting firm with are superb detailed example of the present principle Segregation of Duties. You may be wondering why this principle is important? Segregation of duties establishes and balances the organization of human assets of LBJ that assists with defining the individual employee connections to other employees. The system of segregating duties will provide a reliable basis for evaluating the work of another employee, without a duplication of efforts. The current practices of handling cash and other forms of payments violate the Principle of Internal Controls. To make matters worse, the accountant should not receive the checks and complete the monthly bank reconciliation that violates the Segregation of Duties principle. To illuminate the account opportunity to comment check fraud in the future our recommendation is to hire more staff to have separate individuals collect the checks, make bank deposits, make supply purchases and then the accountant can approve payment of the items purchased. As the President of LJB, appoint an executive that will be responsible to sign the checks as payment for the supplies. The company wants to provide guidelines to help with transition to go public in the near future. These guidelines will provide the company’s staff to be aware of their individual duties, limitations, responsibilities, the personal use of company property, the protection of company assets and cash, and these examples will create checks and balances for the company. Establishment of...
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