Case Study 2 (Internal Controls)

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Table of Contents Cover Page 1 Table of Contents 2 Introduction 3 Report 3 Conclusion………………………………………………………………………………...4 Work Cited Page………………………………………………………………………….5 Introduction An assessment of system controls has been conducted for LBJ Company prior to going public. In order to detect and minimize the potential for fraud, the following control activities were audited: establishment of responsibilities, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resource controls. All are important for restricting responsibility and reduce the possibility of abuse. Report After reviewing the current system of internal controls the following additional internal control requirements are recommended before going public: segregation of duties, rotation of duties, establishment of responsibilities, independent physical controls, and cash controls. Currently the following controls are in place or are being considered and should be put in use: the use of pre-numbered invoices and the purchase of an indelible ink machine to print checks. The ink machine should be purchased to provide a form of physical control. There are controls that need to be put in place as there are several procedures that are lacking internal controls. The accountant who serves as treasurer also serves as the controller. This process lacks a segregation of duties and establishment of responsibilities. A segregation of duties calls for different individuals to be responsible for related activities. Establishment of responsibilities calls for tasks to be assigned to specific individuals. The responsibility for being treasurer should be separate from the controller duties and separate from the accountant duties. Because one person purchases supplies and pays for the purchases this allows for

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