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- Internal Control for LJB Company
Course: ACCT 504- Financial Accounting
November 2012

Table of Contents:

Cover Page……………………………………………………………………….1
Table of Contents…………………………………………………………………2
Why Use SOX……………………………………………………………………3
Recommendations & SOX Principles……………………………………………3
Enhancing the Positives………………………………………………………….5

Tom Wheatley, President
LJB Company
20 N Wacker Drive, Suite 200
Chicago, IL 60605

re: Improvement to Internal Controls

December 12, 2012

Dear Tom Wheatley,
Why Use SOX? There are several internal control considerations that Midwest Consulting advises you to explore going forth. When you become public, LJB Company is required to meet Sarbanes- Oxley Controls (SOX). These standards are an internal control system whose purpose is to stop fraud and meet the terms of SOX laws and regulations. It can also be used to systematically improve businesses and is an opportunity to recognize the significance of you, the President of LJB Company, getting involved in certification of accuracy in financial data. Many other top level executives are doing the same! I have identified several recommendations that align with internal control principles and would like for you to consider them as you move forth.
Your accountant will need to become cognizant of his responsibility to make all matters regarding your organization’s financial matters transparent. Also, the paired responsibilities of purchasing and paying, receiving and reconciling checks, and being treasurer and controller are contradictive of the spirit embodied by SOX legislation. The joint interest of both President and Accountant will make the integration of internal control, through these recommendations, an easy transition.
Recommendations & SOX Principles
LJB Company is responsible for documentation and implementing reports on adequacy of your internal control on financial reporting (ICFR). Your organization and accountant is responsible for improvements related to the following: * “Assessing design and operating effectiveness of selected internal controls related to significant accounts and relevant assertions, in the context of material misstatement risks” Recommendation: An effort to separate purchasing and paying for supplies and materials should be made is recommended * “Understand the flow of transactions, including IT aspects, in sufficient detail to identify points at which a misstatement could arise”. Recommendation: Declining indelible ink check- printing machine paired with the adaptation of individual computer logins would be appropriate to improve detail orientation through pre-printed checks and accountability for all actions that could directly and indirectly relate to a significant, or recordable, financial event * “Evaluate company-level (entity-level) controls, which correspond to the components of the COSO framework.” Recommendation: Separate the roles of treasurer and controller, to allow each positions’ actions to remain objective of one another. If LPC Company hires a controller, it will be affording security through a checks and balances system between the Treasurer and Controller’s actions. * “Perform a fraud risk assessment” Recommendation: indelible ink check- printing machine paired with the adaptation of individual computer logins would be appropriate to improve detail orientation through pre-printed checks and accountability for all actions that could directly and indirectly relate to a significant, or recordable, financial event. * “Scale the assessment based on the size and complexity of the company and evaluate controls designed to prevent or detect fraud.” Recommendation: Assign individual logins and various security settings which will provide layers of safety and internal control by reducing access to files and programs that are beyond the scope of one’s job responsibilities. This will assign questionable IT behavior to an identity. It will also contribute to understanding the flow of transactions, which is an objective of SOX.
These recommendations, although overlapping, are standards for internal control and will improve the condition and efficiency of your existing internal control. You may not always be able to rely on the character of individuals to admit guilty behavior (as with your inappropriate pornography download fiasco). Internal control is not a matter of trust, but protecting your business operations. In addition to these recommendations, I would like to add that background checks would be a beneficial addition to your HR Hiring process; it may avoid incidents like the one described above and prevent the rejection of insurance claims if financial damage had arose from that incident
Enhancing the Positives
Your confidence in long- term employees is a great. I’m sure that it contributes to positive employee morale. In addition to positive morale you have demonstrated an understanding to the significance of asset protection by limited access to purchasing and paying responsibilities through one trusted employee. This is an indicator that your accountant’s role is based on competency, objectivity, and understanding the risk of choosing a newer employee. This is a goal of SOX. It is also great that your accountant secures checks in a safe and is solely responsible for distribution of them.
It is important that you are aware of the severity of compliance with SOX requirements; compliance could make or break your business’ sustainability and outlook. It is important that you take a hand in protecting your company’s financial well- being. SOX regulations have required external control to audit companies and ensure objectivity. Your business is worth the investment.
I hope that these recommendations prove useful in the assertion of internal control at JCB Company. If you would like to secure further consulting services, please let me know.

1. ^ Kimmel, PhD, CPA, Paul D.; Weygandt, PhD, CPA, Jerry J.; Kieso, PhD, CPA, Donald E. (2011). Financial Accounting, 6th Edition. Wiley. ISBN 13 978-0-470-53477-9. 2. ^ a b Bumiller, Elisabeth (2002-07-31). "Bush Signs Bill Aimed at Fraud in Corporations". The New York Times. 3. ^ COSO Definition of Internal Control 4. Anderson, Chris. Writing Accounting Procedures for Internal Control, Bizmanualz, November 17, 2008. 5.

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