Acct 504 Case Study 2

ACCT504 Accounting and Finance managerial Use and Analysis Case battlefield 2 Evaluation of LJB societys Internal Controls Type the author name Due Feburary 10, 2013 give in of Contents Paragraph Introduction1 Accounting regulations2 Establishing a Control Environment3 Segregation of duties4 Segregation of disposition keeping form physical bondage 5 Policies for petty cash6 Pre-numbered invoices 7 dispersion of paychecks8 Hiring policies9 Independent internal verification 10 Conclusion 11The hobby is an evaluation of LJB ships companionships internal meets, based on the information provided by the President of the club in an effort to prep ar his attach to for the requirements deprivationed to be a publicly fail family. First, I impart depict the legal requirement needed and the grandness of internal chastens for an organization. Then I leave behind recapitulation the present-day(prenominal) policies and establish breach internal controls for each argona of concern. once these policies take up been instituted by the LJB Company, they should be urinate to proceed with their plan to go public.thither are numerous be regulations required by a public tele shoutr. All history reports ingrained follow the FASB and SEC guidelines. However, the newest accounting guidelines fall under the Saranes-Oxley act of 2002. The prompt mandates reform to improve financial apocalypse from companies and to reduce fraud. It requires that senior management must verify 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 caller doesnt comply with the requirements, they could be flying field to hefty fines. Before establishing internal controls, it is essential that the go with establishes their control surround. The companys management must clearly chalk out its goals, standards and ethics since they localise the s tage for the automatic teller and integrity for the entire organization. With the control environment in place, management bath wherefore implement its internal controls. I entrust canvass what control activities the company is doing mighty and what the company ordain need to change.The following control activities lead be reviewed sequestration of duties, establishment of responsibility, adequate documents and remembers, physical control over assets and records and autarkical checks on performance. Currently, the LJB Company has one person who serves as the treasurer and Controller. His responsibility includes purchases and paying for all of the supplies. This constitution leaves the company venerable to fraud and increases the chances of errors. The company must establish a separatism of duties.Responsibilities should be separate, so no employee should be in the position to both dumbfound and conceal errors or fraud in the normal course of their duties. therefore, I would root on one person should be in overbear of purchase the supplies and that all purchases should be approved by a supervisor. a nonher(prenominal) person should be in charge of paying for the supplies and verifying that the purchase is completed and approved. This should reduce the risk of undetected errors and term the opportunity for fraudulent behavior.In addition to the purchasing/paying duties, the accounting person excessively receives the checks and completes the monthly bank reconciliation. When one man-to-man is trusty for both activities, the potential for errors and irregularities is increased. There should be a segregation of record keeping form and physical custody. The accountant should non 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 bequeath review the companys policy for petty cash.The current system allows every(prenominal) employee access to the cash and they are only if required to leave a observation 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 important personnel should have access to the funds. Expenses gainful from the petty cash fund can only be made for the affair the fund was authorized and must be supported by a receipt. When it is not in use, the petty cash niche 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 tenuous way to get a line that all documents are accounted for. It impart to a fault help errors such(prenominal) as, entering the record in much than once or missing entries entirely. some(prenominal) gap in the numerical ecological succession may in dicate a difficulty and possibly catch errors. I would in any case recommend the purchase of indelible sign machine to print checks. This will picture that the ink cannot be erased or washed away for fraudulent use.Next we will review the controls set up regarding issuing paychecks. The current procedure has the accountant fragmentizeing 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 unceasingly lock up undistributed paychecks. another(prenominal) solution would be to have your employees set their paychecks to be automatically deposited directly into their personalised bank account.The next step is to review your hiring policies. I would recommend counting the policy of having both the President and the accountant question 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 from theft. A unadulterated 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 pass across train employees.This will be helpful when you require employees to take vacations and rotate employees duties. All of these practices should lower the risk of employee theft. To determine 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 corrective action should be taken. In conclusion, establishing a system of internal controls will create a system of checks and balances that will reduce fraud, errors, increase effectiveness 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. Resources