Case Study 2Internal Control

Due by Sunday of Week 5, 11:59 p.m., Mountain time

LJB Company, a local distributor, has asked your accounting firm to evaluate their system of
internal controls because they are planning to go public in the future. The president wants to be
aware of any new regulations required of his company if they go public, so he met with a
colleague of yours at a local restaurant. The president of the company explained the current
system of internal controls to your colleague. Your colleague has since been promoted to a tax
position so she has passed on the information below so you can generate recommendations for
the partner at your accounting firm to share with the president of LJB Company.
Since LJB Company is a relatively lean organization, they have a lot of faith in their long-term
employees. They have one accountant who serves as treasurer and controller, which streamlines
many of their processes. In this dual role, he purchases all of the supplies and pays for these
purchases. He also receives the checks and completes the monthly bank reconciliation. The
accountant also interviews and approves of all the new hires. The accountant is so busy that the
company handles petty cash a bit differently. All employees have access to the petty cash in a
desk drawer and are asked to only place a note if they use any of the cash.
The accountant has recently started using pre-numbered invoices and wants to buy an indelible
ink machine to print their checks. The president is waiting to hear from you if this is a necessary
purchase before authorizing.
On payday, the checks are picked up by the accountant and left in his office for pick-up. Before
he leaves for the weekend, he will move the checks into a safe in his office.
The president is still quite embarrassed because he had to fire one of his employees for viewing
pornography on a company computer. He later found out this individual was a convicted felon
who served time for molesting children. The company had a hard time getting the employee to
admit it was him because the company does not assign individual passwords.
Required:
Based on the above information, prepare a Word document to address the following.
1. Inform the president of any new internal control requirements if the company decides to
go public. (7 points)

2. Advise the president of what the company is doing right (they are doing some things
well), and also recommend to the president whether or not they should buy the indelible
ink machine. When you advise the president, please be sure to reference the applicable
internal control principle from your textbook that applies. (13 points)

3. Advise the president of what the company is doing wrong (they are definitely doing some
things poorly). Please be sure to include the internal control principle from your textbook
that is being violated along with a recommendation for improvement. (20 points)

You must prepare a formal report for the partner to distribute to the president, so no
abbreviations or short-hand answers. You also must cite your references. At a minimum,
your textbook should be cited.
Below is a grading rubric for this assignment.
Category Points Description
Understanding 10 Demonstrate a strong grasp of the problem at hand. Demonstrate
understanding of how the course concepts apply to the problem.
Analysis 30 Apply original thought to solving the business problem. Apply
concepts from the course material correctly toward solving the
business problem.
Execution 10 Write your answer clearly and succinctly using strong organization
and proper grammar. Use citations correctly.
Total 50 A quality paper will meet or exceed all of the above requirements.

Best Practices


The following are best practices in preparing this paper.
Cover page: Include whom you prepared the paper for, who prepared it, and the date.
Table of contents: List the main ideas and sections of the paper and the pages where
they are located. Illustrations should be included separately.
Introduction: Use a header on your paper. This will indicate that you are introducing the
paper.

The purpose of an introduction or opening is to
1. introduce the subject and why the subject is important;
2. preview the main ideas and the order in which they will be covered; and
3. establish the tone of the document.
Include in the introduction a reason for the audience to read the paper. Also include an overview
of what you will cover and the importance of the material. (This should include or introduce the
questions you are asked to answer in each assignment.)
Body of the report: Use a header with the name of the case study. An example is, "The
Development of Hotel X: A World Class Resort." Proceed to break out the main ideas:
State the main ideas, the major points of each idea, and provide evidence. Show some
type of division, such as separate, labeled sections; separate groups of paragraphs; or
headers. Include the information you found during your research and investigation.
Summary and conclusion: Summarizing is similar to paraphrasing but presents the gist
of the material in fewer words than the original. An effective summary identifies the main
ideas and the major support points from the body of the report; minor details are left out.
Summarize the benefits of the ideas and how they affect the subject.
Work cited: Use the citation format specified in the Syllabus.












Angela Burnett
Acct Fin: Managerial Use,Anlys 60731
Professor: Ganesh Pandit
Case Study 3
08/09/2014

























Table of Contents:

What is internal Control and SOX Act 1
How are you Properly Adhering to Rules and Regulations? 2
Areas of improvement 3
Works Citied 4


































































What is Internal Control?


As defined by Securities and Exchange Commission The Committee of Sponsoring
Organizations of the Tread way Commission or COSO Framework defined internal
control as "a process, effected by an entity's board of directors, management and
other personnel, designed to provide reasonable assurance regarding the
achievement of objectives" in three categories--effectiveness and efficiency of
operations; reliability of financial reporting; and compliance with applicable laws and
regulations. COSO further stated that internal control consists of: the control
environment, risk assessment, control activities, information and communication,
and monitoring. The scope of internal control therefore extends to policies, plans,
procedures, processes, systems, activities, functions, projects, initiatives, and
endeavors of all types at all levels of a company.

Which means to be able to assure that you are able to achieve operational
effectiveness and efficiency as well as reliable reporting and compliance to rules and
regulations put into place by the SEC.?

According to this and Section 404 act also known as Sarbanes-Oxley or SOX:
top management must individually certify the accuracy of financial
information

Penalties for fraudulent financial activity are much more severe requirements
increased the oversight role of boards of directors and the independence of
the outside auditors who review the accuracy of corporate financial
statements.

Segregation of duties requires that different individuals be assigned
responsibility for different elements of related activities, particularly those
involving authorization, custody, or recordkeeping. For instance, the same
person who is responsible for an asset's recordkeeping should not be
responsible for physical control of that asset.

Proper authorization of transactions and activities helps ensure that all
company activities adhere to established guide lines unless responsible
managers authorize another course of action. Proper authorization also
extends to multiple approvers for large capital expenditures and hiring
personnel.

Adequate documentation and records provide evidence that financial
statements are accurate. Controls designed to ensure adequate
recordkeeping include the creation of invoices and other documents that are
easy to use and sufficiently informative; the use of pre-numbered,
consecutive documents; and the timely preparation of documents.






How are you Properly Adhering to rules and Regulations?


After reviewing the information provided by the business on how it is running its internal operations on a
day to day basis it is found that the following are being done correct.

Use of numbered invoice this is a great way to provide tracking for not only yourself
but as well for customer billing
Ensuring that checks are locked away when not in office this will ensure that no one
can come in and get access to the checks without someone knowing and will help to
prevent theft of the checks and potential fraud
The accountant receives the checks and completes the monthly bank reconciliation
this makes sure that monthly the statements are being updated and that correct
reporting is being done

With this being said when factoring in the indelible ink machine it would be advised to
make the purchase. This ink would ensure that nothing is going to be forged over the original by
making it to where, as stated by dictionary, the ink cannot be erased or washed away.















Areas of Improvement
There are vast arrays of areas that need to be corrected before moving to a public company.
Correction of these items will not only ensure that you are abiding by the regulations set forth by
the SEC but that the company is properly completing the internal control process.
Segregation of duties is needed In compliance to the Sox act the account has taken
over to many of the duties that need to be segregated. With the accountant trying to take
on as treasure, and controller as well as purchasing, and payables this individual now
has no one to oversee their own actions and accountability. With that they are unable to
perform some of their tasks as underlined by rules and regulations for internal control

Proper Authorization of transactions There is no one that is overseeing that any of the
transactions taking place are being audited. Again this does go back to segregation of
duties as well so that along the line of processing of the different aspects of the company
there is a system of checks and balances.

Adequate Documentation Especially with the petty cash being transacted between all
the employees and no on in control of it there is not a proper means of documentation to
tell where or what the money was used for. As well as the checks that is being placed in
the accountants office.

Monitoring of information and communication A simple password protection on the
computers can make employees held accountable for their actions as well as what they
are sending and/or receiving along the lines of their computers. This can keep proprietary
information safer as well as the wellbeing of all the employees.

Effectiveness and Efficiency Along the same lines of segregation of duties by splitting
up the tasks to multiple people that can create systems of checks and balances it will
also make the work place much more effective and efficient in the way it does business.
This will also lead to more accountability for each individual as well as inform those
working for the company that they are held liable and accountable for their actions.


With all these changes put into place as a President of the company you will be able to
know that your system is preventing fraud theft and controversy in the work the place. It
will also provide a clear conceive paperwork that different individuals along the line of
command and duties can help to track down any issues and ensure that your company is
compliant to the SEC so that when and if audited you do not receive any fines or
unnecessary losses.















Works Cited


Final Rule: Management's Report on Internal Control over Financial Reporting and Certification
of Disclosure in Exchange Act Periodic Reports. (n.d.). Retrieved August 9, 2014.

ndelible ink. (n.d.). Retrieved August 9, 2014.