If LJB decides to go public the first thing the President needs to about new internal control requirements is the Sarbanes-Oxley Act or SOX. The Sarbanes-Oxley Act is a United States federal law which sets new or enhanced standards for all U.S. public companies. The reason that this SOX bill was created was because a a number of major corporate and accounting scandals. When these scandals happened they cost investors billions in losses because the share prices fell it shook public confidence in our securities markets. With the SOX act all publicly traded companies must maintain internal controls where there are checks and balances when it comes to the company’s finances. Another thing LJB must look at if the company decides to go public is the most basic component of the internal control system both in the environment as well as its control activities. In the environment the President of LJB mush make sure that his employees value integrity and understand that all unethical activity will not be tolerated. When looking at the control activities, the President should understand the importance of controlling the activities of the company. He must understand the importance of preventing fraud. The president must also know that in order to reduce the occurrence of fraud he should have policies and procedures in place to address the specific risks faced by the company and going back to environmental controls, the President should also make it known that if such activity does occur swift action will be taken against the employee.

Positive points for LJB is the decision to switch to pre-numbered invoices as well as thinking about buying indelible ink, which will be an excellent investment. The machine will also help them simplify their accounting duties as well as help the company be more organized. By using pre-numbered invoices LJB will be able to prevent a transaction from being recorded more than once or not at all. Also, the accountant’s act of keeping the checks in a safe in his office goes along with the physical controls principle. By doing this, the company is safeguarding their assets and allows for the accuracy and reliability of the company’s accounting records. Some things that LJB need to work on are the segregation of duties. The accountant is acting as both the treasurer and controller. His job includes buying the supplies as well as paying for them. Another part of his job is receiving the checks and completing the monthly bank reconciliations. With one person doing all of these jobs the possibility of fraud is very real. LBJ should consider using the three principles of internal control segregation of record-keeping staring with physical custody, documentation and independent internal verification. Using such a system of checks and balances will help prevent fraud or other kinds of misconduct inside the company. First the company’s internal controls over cash receipts should include: designating only personnel such as cashiers to handle cash; assigning the duties of receiving cash, recording cash, and having custody of cash to different individuals; obtaining remittance advices for mail receipts, cash register tapes for over-the-counter receipts, and deposit slips for bank deposits; 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; making independent daily counts of register receipts and daily comparisons of total receipts with total deposits; and bonding personnel who handle cash and requiring them to take vacations. Secondly the company’s internal controls over cash disbursements include: having only specified individuals such as the treasurer authorized to sign checks; assigning the duties of approving items for payment, paying the items, and recording the payment to different individuals; using pre numbered checks and accounting for all checks, with each check supported by an approved invoice; after payment, stamping each approved invoice “paid”; storing blank checks in a safe or vault with access restricted to authorized personnel, and using a machine with indelible ink to imprint amounts on checks; comparing each check with the approved invoice before issuing the check, and making monthly reconciliations of bank and book balances; and bonding personnel who handle cash, requiring employees to take vacations, and conducting background checks.
Something else the company needs to look at is that all of their employees have access to the petty cash in a desk drawer and are asked to only place a note if they use any of the cash. With such lack of checks and balances it is almost impossible to determine who is responsible for the error. What LJB needs to do is to assign responsibility to specific employees. Such as one person taking control of the petty cash and having the responsibility of keeping a log of the petty cash. The money should also be kept in a safe and a manager should reconcile it at least once a week to keep check on the person who is in charge of the petty cash. Another suggestion is to enter the petty cash into the system to replenish the funds of company. Lastly, LJB needs to work on their hiring process. They should conduct thorough background checks on all newly hired employees Also, all employees should have their own login for the computer so that manage is able to watch the websites employees are going to, as well as when they long on and off their computers. Another important aspect LJB can look at for their computers in getting a program that will block certain websites, so employees are less tempted to look at inappropriate websites while at work.