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Acct 504 Week 5 Case Study

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Independent Internal Control Audit
President of LJB Company

6/8/2014
LJB Company

Scope
To evaluate the LJB system of internal controls to ensure that they align with the SOX regulations, as LJB plans to go public at an upcoming date. Areas examined were accounts payable, accounts receivable, human resources, physical and non physical controls. Below is a summary of the findings from the audit.
Strengths
There were several internal controls already in place such as the pre-numbered invoices, and the use of a safe for keeping checks secure after hours. It is a great idea to move forward with the purchase of the indelible ink machine to print checks; both this machine and the pre-numbered invoices provide physical internal controls and will help prevent fraud activity.
Weakness
During the audit there were several internal control issues that send up blaring red flags, the most obvious of which is the accountant himself, whose position has no segregation of duties (238). It is recommended that the accountant’s position be split into several other positions. It is not good ethics for the accountant to act as human resources, treasurer, and controller; this creates a huge opportunity for fraud, one of the most crucial pieces of the fraud triangle (238). It is recommended that positions for a controller, human resources, and a treasurer be created, that way the company has ethical segregation of duties.   Once implemented the company will have a controller, an accountant, human resources personnel, and a treasurer; thus creating a secure system of checks and balances or independent internal verification system.
There are several physical internal control issues that need to be addressed. While keeping a safe for securing checks is seen as strength, it should be used more often than just on the weekends. The safe also, should not be...

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