LJB Company
Mr. President

1. According to the Public Company Accounting Oversight Board (PCAOB), Sarbanes-Oxley’s new requirement for internal controls if your company decides to go public is on the annual report; your company must report internal controls over your financial reporting. This report should include:
• Statement of responsibility by management of the company (such as the President and CFO) for establishing structure and procedures for financial reporting.
• Statement identifying the framework used by management to evaluate the effectiveness of the company’s internal control over financial reporting.
• Management of assessment of the effectiveness of internal controls over financial reporting.
• Attestation by the company’s external auditor on management’s assessment of the company’s effectiveness of the company’s internal controls and procedures for financial reporting.
2. It is very good that your accountant has started to use pre-numbered invoices. This way, you can always know if any checks are missing. This follows the documentation procedure of the internal control process. I would recommend the buying of the indelible ink machine. According to the principles of internal control applied to cash disbursements; physical, mechanical, and electronical controls are important to safeguarding your assets and enhancing the accuracy and reliability of the accounting records. Physical, mechanical, and electronical controls for cash disbursements states that you should print check amounts by machine with indelible ink.
3. I will advise that you hire more accountants for your accounting departments. Having only one accountant handling not only accounting duties but also human resources duties, such as interviewing potential employees is a violation of segregation of duties and the establishment of responsibility sections of the internal control process. There should be assignment of responsibility to specific individuals within the company. An accountant should not be doing the job of a human resources employee. It is vital that a human resource department is established in order to have more controls over the employment of personnel. This will help in the future when it comes to hiring employees. This way human resource can be responsible for doing background checks on employees to ensure there is no criminal history that might put the company at risk for fraud. Human resource can also put out manuals with company guidelines for everyone within the company in regard to their conduct and behavior, and letting them know the consequences of not following the rules and regulations of the company. Within these guidelines, the internal controls over information systems should be addressed. Company computers should have password issued to each employees in order to keep track of who is using the computer, and what they are viewing. It should also be addressed that only company related things should be viewed in the computers. There should be an accountant serving as treasurer, and one as controller. The person who purchases supplies for the company should not be the one paying for them. There should also be a different accountant to handle the monthly bank reconciliations. The accountant is handling too many duties causing him to be neglectful in his duties. When one person is responsible for all related activities, the potential for errors and irregularities increases.
Leaving the payroll checks in his office for pick-up violates the physical, mechanical and electronic controls. If he’s not in his office, the payroll checks can be easily taken by anyone who walks into his unattended office. The payroll checks should be in a safe when he’s not in his office. He is also violating the documentation procedures of internal control. He should record each time an employee picks up their check in order to keep tight control over the disbursement of payroll checks.
The cash control and access to assets principle are being violated when all employees have access to the petty cash. In order to keep employees from stealing from the petty cash fund, the company should minimize the amount of cash that is kept in the drawer. Not every employee should have access to the petty cash. One person should have the responsibility of disbursing petty cash when it is needed. This way, if cash is missing, it is easier to track down the culprit. Petty cash should also be kept in a safe in order to protect it in case the person responsible for disbursing petty cash has to step out for any reason.