Internal Control
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Case study 2
Good afternoon Mr. President
I have taken the time to review all of the information you provided to my colleague. After analyzing the date I have some suggestions or rather say recommendations for the company. As per your conversation, you stated that LJB is looking to go public. There are a few things in terms of internal control that must be taken into consideration. The first one is that responsibilities must be established. Everyone must know what their specific task and role is within the company. Possible investors or stakeholders would like to see what each member does within the company. Then we have the segregation of duties. There are certain jobs that can not be preformed by only one individual. Follow by documenting every transaction and procedures that can possibly affect the business.
Until this point the company has been doing certain things that are in favor of the company. The first one is the fact that the accountant started using the pre-number invoices. That procedure will simply help located these transactions easily, as well as alleviate the process of recording. I believe the idea of buying the indelible ink machine is good. With this machine there is no way any check or documents printed can be altered. With these procedures the company is also taking security measures. Moving on to something else, I notice that there should be a few things to be re-adjusted. Lets start with the fact that the accountant serves as both treasurer and controller. There are certain tasks that can not be done by the same individual. It creates a conflict of interest, and might arise questioning by other parties.
Another thing is that if he is allowed to make the purchases, he should not be allowed to approve them. The fact that he has the liberty of doing both means he has the ability of altering that data. The account also balances the books with no supervision, giving him the liberty to recorded transactions as he pleases, not as they should be. I would suggest that another account be hired to divided the work, and one supervises the other. Something that really caught my attention was that your company is currently printing checks. Most companies now in days offer their employees direct deposit. This is not only convenient for the employees, but it also allows the system to do the work; unless someone alters the information wont over or under pay anyone. It will also eliminate having people walking in an out of the accountants office, as well as interrupting their task. Mr. President, for now these are my recommendations. If you have any other questions or need more guidance feel free to contact me or my company.