Case study Internal Control, LJB Company Example | Topics and Well Written Essays - 500 words

Internal Control, LJB Company - Case Study Example The report must explain the effectiveness of the internal control procedures and mechanisms of the company during the most current fiscal year. Some of controls areas that the SEC expects companies to cover include fraud prevention, risk assessment, and accounting procedures. SOX also includes a clause that stipulates that major executive managers of public companies, including the CEO, must sign the quarterly and annual financial statements assuring they are free of material error and fraud. If fraud is detected in the financial information, the CEO could be liable up to 25 years in prison (Whitecollarfirm, 2011). LBJ Company is doing some things well. The controller is a valuable asset to the business. The company uses multiple processes that are needed to have good internal controls such as bank reconciliations and asking for a written explanation if an employee uses the petty cash account. The petty cash process can be improved by asking the employees for a receipt of the purchase. Further recommendations to the petty cash process will be mentioned in the next paragraph. In terms of fostering a good corporate culture, the managerial staff is showing loyalty, empowerment, and a belief in the employees. There are many internal control issues at LBJ Company. First, the accounting department is understaffed, which has the controller serving too many functions. This creates internal control deficiencies in the entire system. The controller should not be making purchases, receiving checks, or making bank deposits. Nobody is overseeing the work performed by the controller. I recommend the company hire two additional accountants for the department. The company also needs to raise the level of accountability and to verify the work of the department. This can be done by implementing two company audits twice a year to be performed by an independent auditor with CPA credentials. The