My colleague met with you to discuss the opportunity for your company to go public in the future and since your meeting, he has been promoted and the Internal Control review of your company has now been assigned to me. I would like to inform you about the current Internal Controls, how your company is performing, my recommendation on buying an Indelible Ink Machine, and Internal Control changes that I recommend you make.
There are 5 main areas of control that LJB Company needs to address in order to stay in good standings with internal controls. The first internal control is the Establishment of Responsibility; “Control is most effective when only one person is responsible for a given task.”(Kimmel 339) A company should limit one employee to each area to limit the chance of illegal activities. Segregation of duties ties into establishing responsibility by assigning related activities to different employees. Documentation procedures deal with making sure that all transactions and events are documented and monitored. Physical, mechanical, and electronic controls are based on keeping safes, computers and time clocks monitored and restricted. Independent internal verification is used to audit employees and data reconciliation. The last category is called other. This deals with bonding employees who handle cash, and rotating employee duties.
Based on the information you gave my colleague and my review of your company, I do not recommend you purchasing an Indelible Ink Machine at this time based on the information which gave to my colleague and my review of your company. This expensive purchase is unnecessary and can easily be avoided if you apply better internal control practices. The implementation of using numbered invoices is a good practice and should continue to be used moving forward. This practice will allow you to document and monitor your transactions as well as make reconciliation an easier procedure. It is a good practice to have your accountant keep the checks stored in the safe as this helps with your physical controls, although I would suggest that the checks remain in the safe time the accountant is not in office until they are picked up.
I recommend 4 changes in review of LJB Company’s internal controls. The first change that should be made is in regards to Establishment of Responsibility. You should assign the tasks of Treasurer and Controller to separate employees. The accountant
