Acct 504 Case Study 2

ACCT504 Accounting and Finance managerial Use and Analysis Case Study 2 Evaluation of LJB unions Internal Controls Type the author name Due Feburary 10, 2013 Table of Contents split up Introduction1 Accounting regulations2 Establishing a Control Environment3 Segregation of duties4 Segregation of record retention form physical custody 5 Policies for lilliputian cash6 Pre-numbered invoices 7 dispersion of paychecks8 Hiring policies9 Independent internal verification 10 Conclusion 11The following is an military rank of LJB communitys internal gives, based on the information provided by the President of the company in an effort to prepargon his company for the requirements pack to be a public aloney run company. First, I impart move over the legal requirement needed and the importance of internal controls for an organization. Then I leave come off the current policies and gear up better internal controls for to apiece one area of concern. Once these policies get been instituted by the LJB Company, they should be ready to flow with their plan to go public.There are many invoice regulations required by a public company. All accounting reports moldiness follow the FASB and s guidelines. However, the newest accounting guidelines fall under the Saranes-Oxley act of 2002. The Act mandates reform to amend financial disclosure from companies and to flinch fraud. It requires that senior management must rely the accuracy of the reported financial statement. Plus it requires that management and auditors maintain a system of internal controls and report the methods of these controls.If the company doesnt comply with the requirements, they could be subject to hefty fines. Before ca-caing internal controls, it is essential that the company establishes their control environs. The companys management must clearly outline its goals, standards and ethical motive since they set the stage for the atmosphere and integrity for the entire organization. With th e control environment in place, management mountain then implement its internal controls. I will review what control activities the company is doing right and what the company will need to change.The following control activities will be reviewed segregation of duties, administration of responsibility, adequate documents and records, physical control over assets and records and independent checks on performance. Currently, the LJB Company has one mortal who serves as the Treasurer and Controller. His responsibility includes secures and paying for all of the supplies. This polity leaves the company venerable to fraud and increases the chances of errors. The company must establish a segregation of duties.Responsibilities should be separate, so no employee should be in the position to both(prenominal) make and conceal errors or fraud in the normal course of their duties. Therefore, I would recommend one soul should be in charge of purchasing the supplies and that all purchases s hould be approved by a supervisor. Another person should be in charge of paying for the supplies and verifying that the purchase is accurate and approved. This should reduce the risk of undetected errors and confines the opportunity for fraudulent behavior.In addition to the purchasing/paying duties, the accounting person alike receives the checks and completes the monthly bank reconciliation. When one individual is responsible for both activities, the potential for errors and irregularities is increased. There should be a segregation of record property form and physical custody. The accountant should not have custody of the checks and be responsible for the monthly band reconciliation. There should be a constitution in which the work is either separated or reviewed by a supervisor. Next, I will review the companys policy for footling cash.The current system allows every employee access to the cash and they are notwithstanding required to leave a note if they remove any funds. This policy violates many proper internal control activities. The company needs to establish who is ultimately responsible for handling the petty cash. Only authorized effect should have access to the funds. Expenses paid from the petty cash fund can only be made for the purpose the fund was authorized and must be supported by a receipt. When it is not in use, the petty cash box must be placed in a locked safe or cabinet.An independent count of the receipts and cash on hand must be performed regularly by an accounting officer or supervisor. The new policy of using pre-numbered invoices is an excellent way to batten down that all documents are accounted for. It will also help errors such as, introduction the record in more than once or missing entries entirely. any gap in the numerical sequence may indicate a problem and possibly catch errors. I would also recommend the purchase of indelible ink machine to print checks. This will insure that the ink cannot be erased or washed a way for fraudulent use.Next we will review the controls set up regarding issuing paychecks. The current procedure has the accountant plectron up the paychecks and leaving them in his office for pick up. The checks are locked into a safe if he leaves for the weekend. When you pay employees, certain controls are needed to reduce the risk of fraud or errors. Whenever possible, the accountant should hand the checks directly to the employee, and invariably lock up undistributed paychecks. Another solution would be to have your employees set their paychecks to be automatically deposited directly into their personal bank account.The conterminous step is to review your hiring policies. I would recommend counting the policy of having both the President and the accountant interview and make decisions on hiring an individual. However, I would also recommend implementing the following policies. If an employee handles cash, the company should have that employee bonded to protect the company fr om theft. A thorough background check should be run on each employee. All credentials should be verified by phone or by receiving a copy if applicable. After the employee has been vetted, be sure to cover up train employees.This will be useful when you require employees to take vacations and short-circuit employees duties. All of these practices should lower the risk of employee theft. To ensure the reliability of the accounting information, an employees duties should be verified by others who do did not do the work themselves. I would also recommend that the company sets up a system for an independent internal verification. The company should audit data prepared by an employee periodically. This person should be independent of the activities or department of the person being audited.All discrepancies will need to be reported to management, so disciplinary action should be taken. In conclusion, establishing a system of internal controls will create a system of checks and balance s that will reduce fraud, errors, increase strong suit and insure they are fully compliant will all laws and regulation. each internal control is the means by which an organizations resources are directed, monitored and measured. These recommendations will help the company establish specific policies and procedures they will need to reach their goals of becoming a publically traded company. 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