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Acct504 Case Study 2

1009 words - 5 pages

LJB Company: Internal Controls. This proposal will inform the president of the new internal control requirements necessary if the LJB Company is to go public. This proposal will also inform the president of the already properly functioning internal controls, and the purposed purchase of the indelible ink machine. Finally, this proposal will inform the president as to the internal control measures which are not being taken, and thus inadequately protecting the company from becoming a victim of fraud. These topics will covered in order to exemplify what other internal controls are needed, where LJB Company is successfully implementing internal controls, and in what manner internal controls are ...view middle of the document...

, 2013).
Three aspects of internal control that LJB Company is implementing or planning to implement is the use of pre-numbered invoices, second, only the accountant handles employee paychecks (which is kept secure in his office, or in a safe when the accountant is away for the weekend), and third, is the planned purchase of an indelible ink machine to print checks. The use of pre-numbered invoices is on par with the internal control of maintaining adequate records which ensures complete processing, proper cutoff, prevents theft, and reduces inefficiency (Harrison et al., 2013). Another way in which adequate record keeping is an important internal control is that it makes it easier to determine if there is a gap in the sequence of pre-numbered invoices, and whether a transaction was mistakenly not processed or if it was due to malicious intent (Harrison et al., 2013). Only the accountant handling paychecks is the limited access internal control, since the accountant has custodial responsibilities of this information, only he should have access to it (Harrison et al., 2013). The accountant also ensures that the checks are secure, by keeping them in his office, or locking them in a safe (Harrison et al., 2013). It is also recommended that LJB Company purchase the indelible ink machine, as this is another safeguard that protects the business from fraud. It will make it more difficult for checks to be printed then altered without anyone noticing, another way that the internal control of maintaining adequate records is of value (Harrison et al., 2013).
There are numerous issues with internal control with which the company can improve. LJB Company is not doing an adequate job of separating job duties and smart hiring practices, as the accountant is entrusted with too many responsibilities, as he handles all of the accounting responsibilities for the company as well as interviewing and hiring of new employees, which led to the hiring of a convicted child molester. These violations of internal control are also compounded as it makes it impossible for anyone to monitor the transactions that...

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