LJB Company: Internal Control Evaluation

Acct: 504 Case Study 2

Prepared by: Lennard Razor
Prepared for: LJB Company
11/29/2014

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Table Of Contents

Introduction: LJB Company Assessment 2

LJB Company: The Transition 3

Summary 5

Works Cited 6

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Introduction: LJB Company Assessment

The overall purpose of this document is to assess the current state of the LJB

Company. This assessment will thoroughly diagnose all of the components, both

good and bad, used by LJB Company to help determine the company’s readiness to

go public. Upon assessing all of the components and regulations currently utilized

by LJB Company, I will also make recommendations for the improvement and

future success of this company moving into the public market.

In order to properly perform an assessment of the LBJ Company, there first

had to be some set of standards or regulations that outline the internal controls and

proper procedures for companies and businesses to adhere to for financial

reporting. As it turns out internal control is a key component of Foreign Corrupt

Practices Act(FCPA) of 1977 and the Sarbanes-Oxley Act(SOX) of 2002 which

required companies to follow this set of internal controls. This list of internal

controls is as follows: 1). Conduct its business in an orderly and efficient manner,

2). Safeguard its assets and resources, 3). Deter and defect errors, theft, and fraud,

4). Ensure accuracy and completeness of accounting data, 5). Produce reliable and

timely financial and management information, 6). Ensure adherence to its policies

and plans.(O’Malley) From this point on all senior management officials will be held

responsible for enforcing and ensuring that their company follows these regulations

and adheres to them at all times. This information will be documented and recorded

annually.

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LJB Company: The Transition

While LJB Company utilizes many good principles and company regulations,

there are a few areas in which could be improved to better adhere to the standard

internal control regulations specified by FCPA and SOX. One of the major concerns

lies within the realm of all the responsibilities and duties of the accountant. The

accountant in this company server as the treasurer and controller; while also

picking up checks and moving them into a safe for the weekend. The first major

recommendation is to divide up the duties and responsibilities of the accountant.

Because every duty being currently performed by the accountant is very important,

the recommendation is that LJB company find another employee to interview and

approve new hires. Typically this type of work is performed by an employee of the

HR department. The proposed solution here would be to assign this duty to the HR

department while advising them to use different screenings and background checks

to help smooth out the process. Implementing this change will help LJB company to

fully comply with internal control number 4 which refers to ensuring accuracy and

completeness of accounting data by removing other non-accounting duties and

responsibilities off of the same individual responsible for the other accounting jobs.

While it is a good thing that LJB Company has a lot of faith in its long-term

employees, another change that certainly needs to be made is the addition of other

qualified and fully skilled employees; preferably those with good management skills.

Doing this would help the company to further comply with both internal controls

number 1 and number 5. Even if they are contractors hired specifically to assist only

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with overall company management, LJB Company would have the knowledge and

skills to help place other duties and tasks amongst other employees more efficiently,

such as having the accountant to stop physically locking up checks into a safe and

encouraging another method for workers to get their checks such as mail to home

address or even direct deposit. I would also approve the purchase of the indelible

ink machine to print their checks. Doing this would help to improve physical control

when checks are dispersed and also provide other layers of security such as

protection against check fraud and other security threats to checks. This would

certainly help the company comply with internal control number 3.

Another change that I would encourage to be made would help LJB Company

further comply with internal control number 2 in the safeguarding of its assets and

resources. The recommendation here is to beef up the security of both the company

itself and computer systems that run and control this data daily. In order to do so

LJB company should certainly increase the number of security guards within the

building, while also implementing data encryption, and also firewalls, network-

based and computer based, in order to protect against any cyber attacks, viruses,

or encrypt any data should a hacker of some sort gain access to the company

network. Doing this would ensure data integrity and further help LJB company to

protect all of its various assets.

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Summary

Overall LJB Company had many great ideas and procedures currently in

place, but still needs major improvements in order to be fully prepared to go public.

All of the changes proposed here will help LJB company to be more effective and

efficient; while also fully complying with the list of internal controls ensuring that

this company has all the necessary components to produce successful financial

reporting. After these changes are made, LJB Company will be in a better position to

properly handle their operations and ensure that they are always better protected

as well.

Works Cited

O’Malley, Patricia. (2014). Internal Controls. Greater Washington Society of CPAs: Non-Profit Accounting Basics.(p.102). Retrieved from www.nonprofitaccountingbasics.org