If LBJ Company decided to go public they would have to follow the Sarbanes-Oxley Act of 2002. Under this act LBJ Company would be required to keep an adequate system of internal control. If a company is found to be out of compliance of this law they are subject to fines and possible imprisonment for its officers. LBJ Company would also have to have outside auditors attest to the adequacy of its system. In order to create a good system of control LBJ Company needs to meet 5 primary components. A control environment, risk assessment, control activities, information & communications, and monitoring.
Currently the company is doing a good job in some areas for example using pre numbered invoices, reconciling its bank statements, locking payroll checks up over the weekend, and having two people to interview and approve all new hires. Also the accountants want to purchase an indelible ink machine to print checks is a good idea. I would also suggest that they’re printed on carbon paper, so that the second copy can be submitted to the accountant for verification purposes.
I did find some areas where LBJ Company should be concerned. The largest of those concerns are the accountant serving as both the treasurer and controller. This should really be two separate activities. If there were a problem with the money no one would have no way of knowing since one person handles all activities associated with the cash are done by the accountant. The accountant really should handle all the record keeping and reconciling the bank statement and the treasurer issuing money. This way no money is issued without the accountant being aware. The purchasing of supplies should also be broken up into a two part process. One person to decide what needs to be ordered and then submit the order to a second person for approval. The next area of concern is the paychecks being left out for employee pickup providing opportunity for theft. Having the paychecks left out is just like leaving unattended cash. Anyone could come in take another employee’s check and have it cashed without the company knowing who for a long period of time. Paychecks should be under the control of at least one person and locked und3r dual control at night. They should also be signed out when an employee comes to pick it up. Other options are offering direct deposit or mailing checks to the employee’s homes. Another area of concern is the hiring process LBJ Company. It’s great that both the president and accountant team together to interview new associates but there needs to be more to the hiring process to limit the liability to the company. LBJ Company should run background checks on all new associates or at the very least check references and the job history of applicants before making a job offer. I would also suggest the company issue individual logins and passwords for its associates as well as limit the content they are available to view. Associates should only have access to information necessary to do their job. If unlimited internet access in not need to do ones jobs then keep a list of approved sites to help them do their job, or at the very least a list of prohibited sites so that associates cannot obtain access to anything the company would deem inappropriate. Lastly the petty cash needs to be controlled. One person should be responsible for the control of the petty cash and it should be kept in a locked box. I would suggest sign out sheet be kept by the controller. It should state the starting cash, who used it, and what the purpose was and sell as have the signature of the person who used it. I would also suggest the location of the cash to be moved to a secure location at night and audit by a supervisor weekly.