Report Of LJB Control System

Submitted By denverho
Words: 1170
Pages: 5


Internal control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is also part of internal control. A successful system of internal control is not built overnight, but is an ongoing process of fine tuning the inner workings of an organization. Many organizations summarize internal control systems in operational handbooks and manuals so employees are able to easily refer to the entity’s policies. Internal control purpose is to help employees and other partners understand the attitude and objectives of the organization as a whole. Internal controls provide reasonable assurance to customers and other parties that transactions are recorded properly and in a timely manner.. Internal system have five basic components as following: a control environment, risk assessment, control activities, information and communication, and monitoring. Each of the five components of an internal control system is important. The control activity also includes six principles: establishment of responsibility, documentation procedures, segregation of duties , independent internal verification, human resource controls , and physical controls. These activities are the backbone of the company's efforts to address the risks the company faces, such as fraud. The specific control activities used by a company will vary depending on management's assesments of the risks faced. All these apply to most companies and are relevant to both manual and computerized accounting systems.

There are some requirements to be developed, if the company want to go public. One of them is that the company should own their control environment. Second, the company also requires to have a department to analyze their operation environment, calculate the risks, do measures to reduce or avoid the risks. Communication between employer and employee also playing an important role in the internal control. The system should be monitored to prevent the fraud.
The following are some advises for the company. The company is doing the right thing to use pre-numbered invoices under the principle of documentation procedure. It is really good to prevent recording the account for more than one time, Pre-numbered invoices also provide a powerful proof that transactions had happened. From my opinion, i would suggest to buy and use the indelible ink machine. It is also a correct thing to move the checks into a safer place in the office. This measure accords with the physical controls. There are few things that the LJB company doing wrongly. Some advises as following in detail: 1) The President should give the job and the responsibility clearly (it is under the principle of establishment of responsibility and segregation of duties.) The president should assign a minimum of two people, one employee is to serve as treasurer and another employee is to be a controller instead of doing all the thing by one person. The rights of receiving the checks and completing the monthly bank reconciliation also need to be sent to other employees. The original accountant only has one duty. It can be effective to avoid the accountant to do the frauds. Assigning responsibility to a specific employee can make the control to run in a good cycle. Different employee should have their own responsibilities for related activities. 2) The company should check the backgrounds of their employees (it is under the principle of human resource controls) The company should check their employees backgrounds to ensure that each of their employee have a good background, with that, the company can reduce the fraud inside their company. So there are no more experience like employee watching porn during office hour. It is better to have a HR department to take the duty of interviewing and