October 1, 2011
I was asked to give my recommendations on LJB Company’s internal control system before the company decides to go public in the future. Based on my review of the information that I have been given, the following are my recommendations for new internal controls: 1. Establishment of Responsibility
2. Segregation of Duties
3. Human Resources Control
4. Independent Internal Verification
5. Physical controls
It is good to see that LJB recognizes the efforts of its long term employees by rewarding them with additional responsibilities. This shows that the employees are valued. There are also some physical controls in place to secure company checks from being mishandled or stolen. Documentation procedures are being used as well. I noticed that the accountant is using pre-numbered invoices for the company’s transactions. It was also mentioned to me that the accountant wants to purchase an indelible ink machine in order to print company checks. This is not advantageous decision. This violates the Segregation of duties internal control. The internal control states, “The responsibility for record keeping for an asset should be separate from physical custody of that asset.” Even though the accountant is a valued employee, he may be tempted to create and use the checks for his own personal gain and no one else would know about it. I strongly suggest that you do not authorize the purchase of the ink machine at this time. I would also like to take the time to inform you of the things that I see that are problems within in the organization. The accountant is playing the role of the Treasurer and Controller, which is a violation of the Establishment of Responsibilities control. This control says that the company should assign responsibilities to specific employees. Segregation of Duties is also being violated because the accountant has the responsibility of purchasing supplies and paying for the purchases. He also receives checks and...
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