...weaknesses in internal control over cash disbursements at Idaho Company are; 1. Checks are not pre-numbered, 2. More than one person is authorized to issue checks, 3. Unissued checks are not locked in a safe or locked cabinet. My recommendations to improve company procedures for internal control over cash disbursements are; there should only be one specified individual such as a treasurer authorized to sign checks. There should never be two people authorized for check signing. Make sure to assign a different person to each of these tasks; 1. Approving items for payment, 2. Paying the items, 3. Recording the payment. Use pre-numbered checks and accounting for all checks, with each check supported by an approval invoice. Always store blank checks in a safe or a locked cabinet or drawer with restricted access and use a machine to print the amounts on the checks. Compare each check with the approved invoice before issuing the check and make monthly reconciliations of bank and book balances. After payment stamp each approved invoice paid. The principles of internal control are; establishment of responsibility, segregation of duties, documentation procedures, physical, mechanical, and electronic controls, independent internal verification, and other controls. Now that Guard dog company’s checks are pre-numbered and they are using the new check writer these two things fall under Documentation procedures and physical, mechanical and electronic controls. There new procedures...
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...Chapter 4 Cash and Internal Controls Answer true-or-false questions about occupational fraud (LO1) E4-1 Below are several statements about occupational fraud. 1. For most large companies, occupational fraud is minimal and internal controls procedures are unnecessary. 2. Managers have a variety of reasons for manipulating the numbers in financial statements, such as maximizing their compensation, increasing the company’s stock price, and preserving their jobs. 3. Internal control procedures include formal policies and procedures related to (1) safeguarding the company’s assets and (2) improving the accuracy and reliability of accounting information. 4. “Cooking the books” is a phrase used by accountants to indicate the preparation of financial statements that are free of manipulation. 5. Most occupational fraud cases involve misuse of the company’s resources. 6. Common types of financial statement fraud include creating fictitious revenues from a phantom customer, improperly valuing assets, hiding liabilities, and mismatching revenues and expenses. Required: State whether the answer to each of the statements is true or false. Answer true-or-false questions about the Sarbanes-Oxley Act (LO1) E4-2 Below are several statements about the Sarbanes-Oxley Act (SOX). 1. SOX represents legislation passed in response to several accounting scandals in the early 2000s. 2. The requirements outlined in SOX apply only to those companies expected to have weak internal controls...
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...The following is a list of weakness in internal control over cash disbursements Idaho Company present: • Placing unissued check in an unsecure place. The checks are placed in an unlocked file cabinet. • Checks are not prenumbered. • There is only one process of check approval • There is no second verification on mathematical accuracy of the vendor’s invoice. • There is only one person conducting reconciliation of the account there should be a second person verifying that the numbers are correct to avoid discrepancies. Memo to Idaho Company: I would highly recommend that the company invest in a safe to place the unissued checks. At the same time, it would be beneficial to purchase checks that are prenumbered to keep better track of them when conducting recordkeeping. The safe should be place in a room where the purchasing agent and the treasurer has access to the checks. At the same time, they are responsible for verifying any checks written. I also recommend that in addition of the stamped place on each of copy of paid invoices to add a date and check number used to pay the invoice. Creating the changed would reduce the possibility of having misplaced checks and it would also protect the company’s assets. In addition, I recommend to improve the current verification process of vendor’s invoices and reconciliation of the accounts it is important to ensure that a second person other than the one conducting the job to perform a second verification of the results. This would...
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...E4-5 A) This weaknesses in internal control over cash disbursements is the many people who have access to the un-issued checks. The checks should be in a vault or safe with restricted access and only authorized personnel with access. Another weakness in internal control over cash disbursements is that the Idaho Company uses checks that are not pre-numbered. Idaho’s Company should use checks that are numbered as well as imprinted with the amount in inedible ink. This can cause some major errors in a company because there is no way to track for any missing checks, or to know if a previous check was written with out knowledge. Another weakness is that there is one person who approve item payments, pay and record items and this should be distributed to different individual to ensure accuracy. B) MEMO To: Melissa Weigl From: Cassandra Gloria CC: Idaho Company Date: 1/31/2010 Re: Internal Cash Control Idaho Company has done well in the internal cash control, although there were some areas I have come to analyze that need improvements. The first improvement I will suggest is that the checks become pre- numbered, and with approved invoice. This is important in a company because the checks that are being distributed need to be able to be tracked. The company should also imprint the checks with inedible ink to avoid an unauthorized personnel to change the amount. Un-issued checks should also be placed in a secured vault or safe with restricted access to ensure that only authorized...
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...AN EVALUATION OF THE INTERNAL CONTROLS SYSTEM FOR CASH FOR THE CASE OF NAIROBI SMALL BUSINESSES BY CLEOPHAS MUSINGA A Management Research Project Submitted In Partial Fulfillment For The Requirements Of The Award Of Bachelor Of Commerce (BCOM), School Of Business, University Of Nairobi JULY, 2008 DECLARATION This research project is our own original work and has not been submitted for academic purposes in any institution of higher leaning. Name Number Sign CLEOPHAS MUSINGA D33/6646/05 ………………………….. This research project has been submitted for examination with my approval as the university supervisor Signed……………………………. Date…………………………………………. Mr. Abdulatif Essajee Lecturer University of Nairobi TABLE OF CONTENTS DECLARATION i CHAPTER ONE 1 INTRODUCTION 1 1.1 Background of the study 1 1.2 Statement of the problem 5 1.3 Objectives of the study 6 1.4 Research questions 6 1.5 Scope of the study 6 1.6 Justification of the study 7 CHAPTER TWO 9 LITERARURE REVIEW 9 2.1 Evolution of internal controls 9 2.2 Components of Internal Controls 12 2.4 Relationship between a firm’s age and internal control 18 2.6 Internal controls in small businesses 19 CHAPTER THREE 21 RESEARCH METHODOLOGY 21 3.1 Research design 21 3.2 Population 21 3.3 Sample and Sampling Technique 21 3.4 Data collection methods 22 3.5 Data analysis 22 CHAPTER FOUR 23 DATA ANALYSIS AND FINDINGS 23 4.1 Introduction...
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...The four types of consumer offerings are: convenience offerings, shopping offerings, specialty offerings, and unsought offerings. Convenience offerings are products or services that are common and are pretty much the same as others like them. Since they are all about the same, consumers don’t usually put very much effort in to finding a specific brand, they just purchase the product or service that they see first. An example of this would be chewing gum products. Shopping offerings are where the consumer will shop for the best product or service they are looking for as far as price and quality. They are going to buy the product or service that is the lowest in price but also meets their wants and needs. When it comes to shopping offerings, brands are very important as the consumer is looking for the best brand out there. An example of this would be a car wash service. Specialty offerings are offerings that are usually marketed differently than other products or services as they are more difficult to come by and more expensive than regular products or services. Specialty offerings may also only be available in certain places and not all over the place for convenient purchase. An example of this would be cosmetic products that are only available for purchase in stores. Unsought offerings are product or services that consumers don’t buy until they are in need of it. Some unsought products or services are available to be prepaid on so that the consumer will be prepared for the...
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...Week 4: Internal Control, Cash, and Receivables - Class Activity 1. | Which one of the following is not a primary component of an internal control system? A. | Risk assessment | B. | Information and communication | C. | Monitoring | D. | Rationalization | | 2. | Which of the following is not a reason why an organization establishes a system for internal control? A. | To safeguard its assets | B. | To increase efficiency of operations | C. | To ensure compliance with laws and regulations | D. | All of these are reasons why an organization establishes a system for internal control. | | 3. | Which of the following statements is correct? A. | Control is most effective when two or three people are given responsibility for the same task. | B. | The person who has custody of assets should not perform the record keeping for the assets. | C. | The person who has custody of assets should also perform the record keeping for the assets. | D. | It is often a waste of company resources to have an employee perform independent internal verification. | | 4. | Internal auditors A. | are hired by CPA firms to audit business firms. | B. | are employees of the IRS who evaluate the internal controls of companies filing tax returns. | C. | evaluate the system of internal controls for the companies that employ them. | D. | cannot evaluate the system of internal controls of the company that employs them because they are not independent. | | 5. | Segregation...
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...MEMORANDUM MEMORANDUM To : Mr. XYZ President, LJB Company From : M F Annigeri, T.E.L & Company, PA Date : 01-Oct-2011 Subject : Results of TEL Review of LJB Company Internal Controls Introduction: This memorandum transmits the review results for LJB Internal Controls requirement for the upcoming public issue of LJB. Further it also provides the details of current practices of Internal Controls and future recommendation as per the Federal Standards. Results & Recommendations: Based on our review we identified certain deficiencies that prevent LJB Company from fully satisfying the standards for Internal Control in the Federal Government. For your information and corrective action we, we have listed the below details. In the future, we anticipate conducting a follow up review to assess the actions you have taken. Considering your requirement and the fact that LJB Company has planned for IPO and reviewing your company’s information as provided by you, following are some of the details on establishing good strong Internal control for having a successful IPOs. Further keep in mind, while doing so the cost involved in the same should not exceed the desired benefits. Implement a light version of SOX with good documented and tested controls. Create and enhance current company policies and procedures to include risk management, insider trading, signing authorities and limits. SEC Complaint financial reporting. ...
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...SUBJECT: Evaluation of Internal Controls Mr. Smith, We have completed our assessment of LBJ Company’s system of internal controls. In addition, our firm researched the regulation regarding publicly traded firms in order to provide you with the most current information. Securities and Exchange Commission. “Official U.S. Agency Web Site.” Web. 24 September 24, 2011. Publicly traded corporations are required to implement the guidelines of the Sarbanes-Oxley Act of 2002. This means that publicly traded companies must include a management report on the internal controls of the company. The annual report must include an attestation report from a registered public accounting firm. The executive officers and the board of directors Wilson 2 of LBJ Company are responsible for implementing and maintaining effective internal controls. Furthermore, the executive officers and board of directors of publicly traded companies must attest to the adequacy of the internal controls of the company. Failure to comply with the standards of SOX subjects LBJ Company, along with the executive officers and board of directors to severe penalties of fines and imprisonment. The five principles of internal control are the following: * Establishment of Responsibility * Segregation of Duties * Documentation Procedures * Physical Controls * Independent Internal Verification * Human Resource Controls The accountant’s decision to start using pre-numbered invoices...
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...School DeVry University ABSTRACT There are several internal control requirements that need to be put into place if the company decides to go public. Those principals are establishment of responsibility, segregation of duties, physical controls, independent internal verification, documentation procedures and human resource controls. Establishment of responsibility is making sure that only designated personnel has the authority to handle certain financial responsibilities. Segregation of duties is ensuring that different individuals have different responsibilities. A physical control is having the proper items that need to be secure in a place that has limited access. Independent internal verification is having individuals confirm the information that is received by various departments to make sure there is accuracy in the documents and reports that are being reported. Documentation procedures is using proper documentation to keep records accurate and having supporting evidence for the transactions that had taken place to make sure that fraud has not occurred. Human resource is handling personnel issues such vacations, conducting background checks and issuing bond personnel for the individuals who handle cash. All of these internal control principals are important to protect the company’s assets, increase the effectiveness of the operations and ensure compliance with laws and regulations. These controls also heighten the accuracy and reliability of accounting records...
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...The Internal control management strategies Prepared for: LJB Company Prepared by: Chibuzor E. Edeh Devry University ACCT 540: Financial Accounting TABLE OF CONTENT Introduction ----------------------------------------------------------------------------------------------------------3 Internal control regulations for public companies -----------------------------------------------------------3-4 LJB’S good internal control measures -------------------------------------------------------------------------4 Recommendations for Indelible ink --------------------------------------------------------------------------4 LJB’S poor internal control measures ------------------------------------------------------------------------5-6 Recommendations for improvement --------------------------------------------------------------------------5-6 Summary --------------------------------------------------------------------------------------------------------7 References ------------------------------------------------------------------------------------------------------- 7 INTRODUCTION Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. Internal control is very important because it discourages employees from fraudulent activities...
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...Chapter 7 – Internal Controls • Key topics: • Know the broad definition of internal control and its purposes, including the objective that is particularly relevant to an audit (i.e. reliability of financial reporting) A process, effected by the entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations (effective and efficient operations), reporting (accurate financial reporting) and compliance (compliance with laws and regulations) • Describe the 5 components of internal control, related examples of each, and how each contributes to the overall control system within an entity (CRIME) 1. Control Environment: The foundation for the other internal control components; it is defined by the standards, processes, and structures that guide individuals in carrying out their duties. Basic principles include: Commitment to integrity and ethical values, Board of directors demonstrates independence from management and exercises effective oversight of internal control, Establishment of effective structure, including reporting lines, and appropriate authorities and responsibilities, Commitment to attract, develop, and retain competent employees, and Holding employees accountable for internal control responsibilities. 2. Risk Assessment: Risk assessment is management's process for identifying, analyzing, and responding to risks from internal and external sources that threaten...
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...Case study 2 Internal control LBJ Company. On behalf of my company, we are pleased to be helping LJB Company in the transformation process from being private to become publically traded company. The transformation process is costly and needs a lot of preparations and planning, since LBJ is relatively small company it should take into consideration the cost of turning to a public company versus the benefits of it. If the company decided that it would benefit more if it turned to a publically traded company, certain internal control policies should be implemented to comply with the Sarbanes- Oxley Act. First, management needs to maintain an adequate system of internal control by: 1. Management will need to provide quarterly periodic reports to evaluate the efficiency and reliability of their internal control procedures. 2. Management should attest the accuracy and fairness of the financial statements. 3. External outside auditors must certify the accuracy of the financial records. Compliance with an adequate internal control system will help the company to safeguard its assets, improve the reliability of the accounting records, increase efficiency of operations and ensure compliance with all rules and regulations which leads to the attraction of potential investors and buyers. (Kimmel 2001) There are five main components that establish an effective internal control system which are 1. Control environment. 2. Risk assessment. 3. Control activities...
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...Internal Controls Under Sox, all publicly traded corporations are required to maintain an adequate system of internal controls. It is recommended that LJB being a relatively small sized company in terms of its employees should reevaluate the costs versus benefits of being a public traded company. It LJB decided to issue stock; they will need to determine how many shares of stock should be sold and the value that should be assigned to the stock. With the internal controls that need to be placed, the related methods and measures adopted within an organization should be to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. The internal control system should include a controlled environment, risk assessment, control activities, information and communication, and monitoring. It has been observed that not all components of an effective internal control system are present in the company. One of the most important components of the internal control system is the management aspect in the company. The management should make it clear that unethical activities will not be tolerated. Since LJB is a relatively small company in terms of employees, they will have an advantage over the competition. It helps to develop loyalty amongst the employees, as well as employee retention. The accountant’s decision to switch to pre-numbered invoices was a good idea and will help control...
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...Week Five Problems and Exercises ACC/290 Principles of Accounting I BE-5-1 Presented here are the components in Korinek Company’s income statement. Determine the missing amounts. |Sales Revenue | |Cost of Goods | | | | |Sold | | |Dec. 15 |Accounts Receivable |900 | | | | Sales Revenue | |900 | | |(To record credit sale to Pocras Company) | | | | | | | | |15 |Cost of Goods Sold |590 | | | | Inventory | |590 | | | (To record cost of goods sold on account) | | | Pocras Company General Ledger |Date |Account Title |Debit |Credit | |Dec. 15 |Inventory...
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