Internal Control Essay

The LBJ association is currently making a ratiocination to go public or non and with that The LBJ Company pass on to a fault destiny to become knowledgeable about their native ascendances within their systems, specific altogethery in regards to Accounting and also Human Resources and how it go forth affect them and their employees and of go how they conduct business.There corroborate been some positive and negative roll in the hays organise in regards to their ingrained requires. However, the LBJ Company needs to be acknowledged for what they atomic number 18 doing right, but will also need to address the starts that atomic number 18 negatively affecting them and their business and will continue to negatively affect them if they fall to go public, which will drive down the cost of their shares etc.This fortune study will review these items as fountainhead as pay recommendations for what the LBJ Company can do to tighten up their internecine controls. dowry 1 Int ernal Controls Requirements Inform the President of any new infixed control requirements if the confederation decides to go public.Internal controls are mechanisms, policies, and procedures used to asperse and monitor operational risks. In order to deter employees from committing a dishonourable or fraudulenceulent act the controls essential be thorough and comprehensive. However, internal controls by themselves are not enough. They will be effective barely if they are reinforced through culture, policies and procedures, information systems, training, and supervision of staff.* The primary objectives of internal controls are to Internal controls assistant to provide reliable data by ensuring that information is recorded in a consistent way that will allow for useful financial reports * They also help prevent fraud and loss by safeguarding assets and essential records. * Internal controls promote operational cleverness by reducing unnecessary duplication of effort and guardin g against misallocation of resources. * They encourage adhesiveness to management policies and funding source requirements. Internal controls can be broke down into cardinal categories- accounting and administrative controls, which is exactly what the issues are with the LBJ Company. (Internal Controls Checklist) harmonise to the Sarbanes Oxley Act of 2002, all publicly traded U.S. corporations are postulate to maintain an sufficient system of internal control at all times. As LJB Company President, he or she should be aware that a controlled environment must(prenominal) be present at all times, and that unethical activity will not be tolerated. The LBJ Company must identify and analyze the miscellaneous factors that could take a leak risk for the business and how the team can manage those risks. The boilersuit internal control system needs to show and communicate all appropriate information within the organization, to en certain(a) that the communicated information has reac hed the organization. According to the textbook, It is really important to puzzle testing and auditing of controls to build a long lasting organization. (Kimmel, 2009)Part 2 What the Company is Doing Right? Advise the President of what the follow is doing right (they are doing some things well) and also recommend to the President whether or not they should buy the indelible ink machine. When you advise the President, please be sure to reference the applicable internal control principle that applies.The come with has been doing well by creating a balanced environment for employees, due to the long-term employees that are currently there is an excellent thing for LBJ Company. From what is being shown, the managers and employees submit a great balance, which keeps great control and promotes a team point environment within the fraternity. Another good thing is that the restrainer is in charge of the checks and also stores them into safe in his office, but the manager should h ave the only key to the safe to increase the monitoring of the checks and would also create a checks and balance system.Plus if the controller is not there for whatsoever reason and an employee needs their check, the manager can handle that and not flub any employment laws by not giving an employee their check in a timely manner. The President of LJB Company, has also d star a good thing for wanting the employees to be aware of any new regulations required of the company if they decide to go public. It is incredibly important the President have different soulfulnesss serve as an Accountant, financial officer and Controller which will help streamline many of their processes. This way, the Accountant will not be trusty for all financial dealings and again this will create checks and balances which are required to go public.Part 3 Advise the President of what the company is doing wrong (they are definitely doing some things poorly). Please be sure to include the internal control principle that is being violated along with a recommendation for improvement. (20 points) This situation for LBJ Company has shown that it is in clear rape of the internal control principle and is take placening significant risks by not including more oversight and checks and balances. First of all, that they have one accountant who plays the utilisation of both Treasurer and Controller is an area of great risk. The Controller and Treasurer are meant to play opposite roles in which they provide oversight and checks and balances to the other. The two positions should be filled by separate employees, and this change should be apply as soon as possible.In the current setup, the one accountant has too much power over the processes. Another issue is the exchange drawer principle also leaves the company vulnerable to fraud and treatment of cash in hand. For example, even if a company employee were to act independently, an employee could easily remove a substantial amount of unautho rized funds, and it would be difficult, if not impossible, to find who did it as any of the company employees could have been culpable. An example of the problems that arise from the anonymity that company employees have within the organization, is clearly exemplified in the case of the worker who was laid-off for viewing pornography on the company computer. Not only does this unveil risks of damaging corporate reputation, and download viruses, but it also highlights how the lack of exclusive user accounts and accountability makes it so that one employee can hide their cattish actions with anonymity. Below are some recommendations for the LBJ Company. Recommendations1) To introduce a culture of corporate responsibility, the CEO should begin to implement individual user accounts for its computers, as well as a formal cash withdrawal system, that requires that company employees muniment themselves with another person or a computer system.2) The role of the one accountant who act s as Treasurer and Controller must be stranded into two so as not to violate the internal control principle, and in order to minimize the likelihood of fraud.3) The checks should not just be left at the accountants office, but in a safe where only two people have access such(prenominal) as the accountant and the manager. That way more than one person is responsible.4) The accountant taking checks home over the weekend is a security issue as well as introduces more opportunity for fraud. This practice must be stopped and more safeguards put in place. This also is an issue regarding personal identifying information on the checks of the employees and if the checks become lost or stolen, so that information is available to the public now.5) The accountant also being mixed in the interview process for new employees is disturbing because of the level of control he has over critical aspects in the companys daytime to day business. If he were to hire an accomplice, he could easily use t hat individual and his position in order to manipulate accounts and withdraw significant funds from the company before he is ever caught. 6) The HR Departments should also run more thorough background checks as part of their hiring processes. (Bell, 2010)Conclusion instantly that the LBJ Company has received the recommendations to fix the issues with their internal controls, they will no question be able to go public and be successful. The LBJ Company should also re-evaluate their processes every so often to make sure that these new systems for their internal controls are successful. They should re-evaluate every so often in case they need to make changes as well.