President of LJB
February 10, 2013
Table of Contents
The purpose of this report is to determine current internal controls and whether they are effective. Currently the company has liability towards its employees and its consumers therefore using the internal controls to protect itself is a necessity. “Internal controls are a system of checks and balances designed to detect and prevent fraud and errors. The Sarbanes-Oxley Act requires U.S. companies to enhance their systems of internal control.”(1) Currently the LJB Company has no checks or balances within the accounting department which could cause the company problems if accounting reports have errors that are not corrected. If the only accountant decided to report fraudulent claims and no other internal controls were in place the company could end up like Enron. Petty cash has is available for anyone to use with only the need to place a note for its use. With petty cash receipts are needed for the accounting department to track petty cash use. There is no control to reduce the possibility of stealing. “Opportunities occur when the workplace lacks sufficient controls to deter and detect fraud. For example, inadequate monitoring of employee actions can create opportunities for theft and can embolden employees because they believe they will not be caught”.(2) Background checks should be used when hiring new employees and we will determine if the company needs to purchase the check machine.
“What can be done to prevent or to detect fraud? After numerous corporate scandals came to light in the early 2000s, Congress addressed this issue by passing the Sarbanes-Oxley Act of 2002 (SOX). Under SOX, all publicly traded U.S. corporations are required to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. In addition, independent outside auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines, and company officers can be imprisoned. SOX also created the Public Company Accounting Oversight Board (PCAOB) to establish auditing standards and regulate auditor activity.” (3)
Currently the LBJ Company is performing some operations in the correct manner. For example the firing of an employee that was using the internet for pornography instead work functions was a necessary form of control. Failing to use a background check to determine that employee was a risk due to that employee being a convicted child molester. This put employees and consumers children of the company at risk while the company would be liable for potential damages. Luckily that did not happen and the risk was minimized before greater negative actions could hinder the company.
“Companies should establish procedures for documents. First, whenever possible, companies should use pre-numbered documents, and all documents should be accounted for. Pre-numbering helps to prevent a transaction from being recorded more than once or from not being recorded at all. Second, the control system should require that employees promptly forward source documents for accounting entries to the accounting department. This control measure helps to ensure timely recording of the transaction and contributes directly to the accuracy and reliability of the accounting records.”(4) I feel the need for the indelible printing machine is needed for the physical, mechanical and electronic internal control. Blank checks should be locked in a safe