Michelle B.
Case Study #2 Internal Control
Acct Fin: Managerial Use, Analysis
October 6, 2013

Summary: The LJB Company is a local distributor located on New York’s lower east side. I was asked evaluate their system of internal controls because they are planning togo public in the near future. The president of the company wants to be aware of any new regulations required of his company if they go public, so he met with my colleague at a local restaurant. The president of the company explained the current system of internal controls to my colleague. She has since been promoted to a tax position so she has passed on the information below so I can generate recommendations for the partner at the accounting firm to share with the president of LJB Company.
Based on the information I was able to collect from the LJB company, in order to go public there are some internal control that needs to be in place (Control environment, Risk Assessment, Control Activities, Information and Communication monitoring). These are done to prevent any fraudulent action and abuse and to be in compliance of the law. I find that operations at LJB are going very well. Keeping checks locked in a separate location is great safety measure. This prevents access to LJB funds protecting them from potential theft. Having pre-numbered checks in my opinion is a good safety measure as well. I would also recommend purchasing the indelible ink machine for the purpose of running checks. The use of the ink machine applies to physical control. Using the ink press will prevent signature forgery.
The down side of my evaluation is that I have found some actions that are in direct violation of the internal controls. By giving employees all access to petty cash is a violation of the company policy. This gives all employees the access and ability to use the money for just about anything. The accountant is technically responsible for petty cash. You need to have more individuals carrying different...