Case Study 2- Internal Controls

1401 Words Jun 3rd, 2013 6 Pages
Content

Introduction…………………………………………………………………………...3

Public Offering….….….………………….………………….…………….…………3

Getting it Right………………………….………………….…………………………4

Things to Ponder…………….………….………………….…………………………5

Conclusion……………………………………………………………………….......7

References……………………………………………………………………….......8 Introduction
LJB Company wishes to move forward and become a public entity. Good corporate governance within an organization may make a company more attractive to potential buyers, investors, and other capital sources. Under SOX Section 404, all publicly traded U.S. corporations are required to maintain an adequate system of internal controls. Corporate executives and boards of directors must ensure that these controls are both
…show more content…
Things to Ponder
It has been observed that the company is violating the principle of control activity of segregation of duties. The accountant is acting as the treasurer and controller. In this dual role, he purchases all of the supplies and pays for these purchases. He also receives the checks and completes the monthly bank reconciliation. Various frauds are possible when one person handles related activities. These duties must be segregated to multiple personnel.
Use of the three principles of internal control segregation of record-keeping from physical custody, documentation and independent internal verification is recommended. This will deliver an effective system of internal controls. Any attempt at fraudulent activity will be detected unless there is collusion among the employees.
Internal controls over cash receipts should include:
(a) designating only personnel such as cashiers to handle cash;
(b) assigning the duties of receiving cash, recording cash, and having custody of cash to different individuals;
(c) obtaining remittance advices for mail receipts, cash register tapes for over-the-counter receipts, and deposit slips for bank deposits;
(d) using company safes and bank vaults to store cash with access limited to authorized personnel, and using cash registers in executing over-the-counter receipts;
(e) making independent daily counts of register receipts and