Fi504 Case Study 2

1169 Words5 Pages
March 26th, 2012 To: President of LJB Company From: Erica Sylvester Topic: Discussion of Internal Controls-New Internal Controls Mandated if Company Goes Public, Current Good Practices and Suggested Improvements 1. New Internal Controls required if company decides to go public: a. If your company decides to become a publicly traded entity, then you will fall under the Sarbanes-Oxley Act (SOX) that requires for all traded U.S. corporations to maintain a system of internal controls that are ensured by executives and the board of directors to be reliable and effective. Independent and outside auditing will be required to check and attests to the adequacy and stringency of the internal control systems (1). Under SOX, your company will also be required to track your employees’ degrees and certifications to ensure that they meet the requirements of their job. An organizational chart must also be developed and monitored to ensure employee supervision and separation of duties (2). 2. Current Good Practices: b. The use of pre-numbered invoices should be continued. This practice supports the principle control activity falling under “Documentation procedures” and is a good method to ensure that all invoices are being correctly tracked and documented and that extra invoices are not being generated for fraud purposes (3). c. The purchase of an indelible ink machine to imprint check amounts is highly recommended as a further documentation control activity procedure. The use of such a machine will ensure that check amounts are correctly and clearly shown on each check and in such fashion that it would be extremely difficult to re-write or forge an amount versus the continued use of hand-written checks which carry a greater error rate and greater opportunity for fraud (4). d. Monthly bank reconciliation: This is a good practice to
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