LJB Company

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Dear President of LJB Company, I will be assisting you with recommendations from the evaluation of your internal controls and planning to go public in the future. There will be many new internal control requirements if LJB Company decides to go public. To prevent and detect fraud, Congress passed the Sarbanes-Oxley Act of 2002(SOX). This act requires all U.S. corporations that are publicly traded to maintain an adequate system of internal control. Internal control is all methods adopted by an organization to safeguards its assets, enhance the reliability of its accounting records, increase efficiency of operations and ensure compliance with laws and regulations. As president, it will be your responsibility to make sure that these controls…show more content…
One huge internal control concern with LJB Company is violation of the segregation of duties internal control principle. The accountant should not serve as Treasurer and Controller. The same employee should not be responsible for related activities and record keeping should be separate from physical custody of the asset. By having the accountant order, pay and receive supplies increases the risk for fraud because they handle related purchasing activities. They can easily use fraud to authorize payment for a false invoice. The accountant also should not be able to print checks and complete the bank reconciliation. It allows the accountant to perpetrate fraud because they have access to blank checks to write fake checks and then cover it up with their record keeping responsibility. Along with segregation of duties, this also violates independent internal verification. A different employee, separate from personnel responsibility for the information, should make the verification and should report any discrepancies to management. Related activities, record keeping and physical custody of assets should be divided and assigned to different employees. This will help one employee provide a reliable basis to evaluate the work of another employee and deter employees from abusing their job duties for personal use. Petty cash should be tightly controlled and only accessed by one person. This way they can keep track of who used the petty cash and the amount of petty cash taken. These issues relates to the physical control principle. LJB Company should also assign individual passwords to employees to track activities of each employee which is a part of the establishing responsibility principle. It will be easy to identify an employee if something goes wrong or if they abuse their privileges. One last thing LJB Company did wrong was not conduct a thorough background check on their employees. This

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