LJB Company: Internal Controls. This proposal will inform the president of the new internal control requirements necessary if the LJB Company is to go public. This proposal will also inform the president of the already properly functioning internal controls, and the purposed purchase of the indelible ink machine. Finally, this proposal will inform the president as to the internal control measures which are not being taken, and thus inadequately protecting the company from becoming a victim of fraud. These topics will covered in order to exemplify what other internal controls are needed, where LJB Company is successfully implementing internal controls, and in what manner internal controls are lacking. One of the first internal controls LJB Company needs to implement is to have a system to separate the duties of the employees, and implement smart hiring practices (i.e. the accountant should not also function as the human resources representative, consequently a convicted child molester was hired). Second is the internal control of comparisons and compliance monitoring. No person or department should be able to completely process a transaction from beginning to end without being cross-checked by another person or department (i.e. the accountant purchases all the supplies and processed payment for these purchases, and he also receives and completes the bank reconciliations) (Harrison, Horngren & Thomas, 2013). Third, is to maintain adequate records, highlighting the importance of the purchase of indelible ink machine. Fourth, is limiting access to both records and assets, it would have been easier to determine which employee was inappropriately using the computer to view pornographic websites (Harrison et al., 2013). The last internal control to be implemented is to have proper approval for all significant transactions, the more important the transaction the higher level management needed for it to be approved, and since this is a relatively lean organization, getting the owner involved will be necessary for certain upper echelon transactions to be approved (Harrison et al., 2013). Three aspects of internal control that LJB Company is implementing or planning to implement is the use of pre-numbered invoices, second, only the accountant handles employee paychecks (which is kept secure in his office, or in a safe when the accountant is away for the weekend), and third, is the planned purchase of an indelible ink machine to print checks. The use of pre-numbered invoices is on par with the internal control of maintaining adequate records which ensures complete processing, proper cutoff, prevents theft, and reduces inefficiency (Harrison et al., 2013). Another way in which adequate record keeping is an important internal control is that it makes it easier to determine if there is a gap in the sequence of pre-numbered invoices, and whether a transaction was mistakenly not processed or if it was due to malicious intent (Harrison et al., 2013). Only the accountant handling paychecks is the limited access internal control, since the accountant has custodial responsibilities of this information, only he should have access to it (Harrison et al., 2013). The accountant also ensures that the checks are secure, by keeping them in his office, or locking them in a safe (Harrison et al., 2013). It is also recommended that LJB Company purchase the indelible ink machine, as this is another safeguard that protects the business from fraud. It will make it more difficult for checks to be printed then altered without anyone noticing, another way that the internal control of maintaining adequate records is of value (Harrison et al., 2013). There are numerous issues with internal control with which the company can improve. LJB Company is not doing an adequate job of separating job duties and smart hiring practices, as the accountant is entrusted with too many responsibilities, as he handles all of the accounting responsibilities for the company as well as interviewing and hiring of new employees, which led to the hiring of a convicted child molester. These violations of internal control are also compounded as it makes it impossible for anyone to monitor the transactions that he processes, which relates to internal control of comparison and compliance monitoring. No one person in a company should be able to process any transaction from beginning to end without being reviewed (Harrison et al., 2013). Another internal control that needs to be implemented is limiting access to records, as they do not assign individual passwords to access computers, and not everyone should have the same access (Harrison et al., 2013). This is an issue, because LJB Company was not able to easily determine which employee had accessed pornographic websites, who also happened to be the employee who was hired even though he was a convicted child molester, which reiterates how lacking one internal control can open up a slew of different problems (i.e. smart hiring practices compounded the lack of internal control in limiting access). Lastly, is the internal control of proper approvals. As the accountant had basically free reign over certain transactions, and all employees had access to petty cash. No transaction should be processed without management’s approval (including the use of petty cash), and approval is especially needed for far reaching transactions (Harrison et al., 2013). Since it was mentioned that this company is relatively lean, then the owner should provide approval for certain transactions, which only ensures the company’s protection from fraud (Harrison et al., 2013). This proposal highlighted the internal control proposals needed to be compliant before LJB Company is to go public. Illustrated which internal controls were already in place, and there effectiveness in protecting the company. Finally it reviewed what mistakes were being made in regard to internal controls, however, these issues were evaluated in order to ascertain how they could be corrected and how these corrective measures would further protect the company from potential fraud.

References
Thomas, W. T. H. C. T. H. C. W. (. (2013). Financial Accounting, VitalSource for DeVry University [VitalSouce bookshelf version]. Retrieved from http://devry.vitalsource.com/books/9781269196536/id/ch05lev2sec7