Internal Control

Internal control

Introduction

Internal control, according to the textbook "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." Under the Sarbanes's Oxley Act, publicly traded companies are required to maintain consistent and functioning internal controls. Internal control is important because they are the key to securing the safekeeping of company assets. Control is activity specific to the size, nature and extent of risk faced in the company. Internal control consists of a control environment, risk assessment, control activities, information and communication and monitoring a company's activities. Internal control has 6 main principles of control activities:

1. Establishment of responsibility

2. Segregation Of duties

3. Documentation procedures

4. Physical Controls

5. Independent Internal Verification

6. Human resource controls

Control is most effective when only one person is responsible for a particular task and having different individuals responsible for related tasks. It will provide a reliable basis for evaluating the work of employees. LJB has violated some of these control activities.

Analysis

Before going public

LJB is a small organization. Unlike larger organization, LJB has an advantage, it will be easier to implement new policies and procedures. The tenured employees already have loyalty to the company. It is easier to set new expectations and rules in smaller companies. It is a good idea that the company has recently begun using the pre-numbered invoices and an indelible ink machine to print checks. This implementation will prevent fraud and duplication in transactions. This control measure will make transactions easier to track creating accuracy and increased reliability of accounting records. Purchasing the indeliable ink machine will help organize and simplify accounting duties. It is a use of physical control.

Physical controls

The accountant keeping the checks in his office in a safe is a factor of physical controls principle. The accountant is safeguarding the assets and enhancing reliability of accounting procedures.

Violations of control: Segregation of duties

LJB has one accountant that is acting as the Treasurer and Controller. He purchases the supplies and pays for the transactions that he purchases. He is also receiving the checks and completing the monthly bank reconciliation. The accountant also keeps the petty cash in a desk drawer are