Essay Acct 504 Case Study 2

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Accounting 504 Case Study 2 Keller Graduate School of Management Prepared by: Samara Ellison Prepared for: Professor Hicks 3 April 2013 To: LJB Company President From: Samara Ellison, Accounting Firm Subject: Evaluation of LJB Company’s Internal Control Structures Date: 3 April 2013 Hello LJB Company President: First, I would like to thank you for hiring my accounting firm to evaluate LJB’s internal controls system. This report will inform you of any new internal control requirements required for LJB to go public, advise you of what the company is doing right, recommend that LJB purchase an indelible ink machine, and advise you what areas the company can improve. Introduction After observation LJB’s operations,…show more content…
Control activities are an internal control structure component that ranks most important. Control Activities: Establishment of Responsibility One control activity in LJB that needs to be addressed is the establishment of responsibility. According to Kimmel (2011), “Control is most effective when only one person is responsible for a given task” (p. 338). Petty cash responsibility needs to be assigned to one custodian to be most effective, and that employee should keep it under lock and key as well as keep a detailed journal of use; this practice also goes along with physical control activities. Each transaction of petty cash needs to be documented on pre-numbered receipts, as well as signed by the custodian and the person receiving the payment. Doing so will allow audits to verify the amount in the account and the payments and be able to track if there is money missing at any given time. Another area that needs to establish responsibility is implementing personal passwords to access the company’s network. Using unique passwords will help identify a fraud or company violation should one occur. Using unique passwords also allows only those employees who are authorized and/or qualified to carry out specific tasks. Control Activities: Segregation of Duties Improvement in the segregation of duties needs development. It is unacceptable for the

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