Fi504 Internal Controls

468 Words2 Pages
In a thorough review of LJB Company’s internal controls it has been found that, although there are some practices currently in place that satisfy a few of the basic principles, there are a significant number of areas of weakness. Based on your company’s current practices and your plan to go public in the future the following internal controls are required: 1. Establishment of duties: Control is most effective when one person is responsible for a given task. As such, you will need to establish one individual to handle petty cash disbursements to employees. 2. Segregation of duties: In order for there to be proper accountability, different individuals should be responsible for related tasks. Allowing one person to make purchases, write and receive checks, and reconcile the bank records violates this principle. Therefore it is recommended that these responsibilities be delegated to different individuals. 3. Documentation: It is vital that all transactions have proper documentations. Your company’s current use of pre-numbered invoices is an appropriate measure for this internal control. Additionally, the purchase of an indelible ink machine for printing checks would provide another layer of protection. The use of such a machine would alleviate the risk of employees altering checks for personal gain. 4. Physical controls: Protecting your assets is critical to the internal control process. It is to be noted that your current use of a safe for payroll checks is one useful implementation of this control. However, it is strongly recommended that you implement some further physical controls. One suggestion is that all employees be given unique logins for computer usage. Additionally, all petty cash funds should also be kept in a safe. 5. Independent internal verification: While segregating duties will provide accountability, this also necessitates the
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