Case Study 2

Case Study # 2

1. There are a few new internal controls that will be implemented upon the company going public. If LJB Company decides to go public, they will need to have a few more controls centered on their reconciliation, the petty cash process, and creating individual passwords. It is unacceptable to have an accountant do both the purchasing and the reconciliation on a monthly basis. You need to have an internal control in place to make sure that the money is being handled properly. While this is just good business on a regular basis, this is absolutely required if the company is to go public. Investors will be extremely cautious and turned off by a company that has the same accountant in charge of both processes. They also need to focus on cleaning up the petty cash process. LJB is just asking for trouble by allowing an open petty cash box and asking the employees to participate in the honors system. They need to have a lock in place and it should be under the control of the president or the accountant. If employees need access to the petty cash, they should have to ask for permission and keep a tracking log of what they take and why. The final internal control that needs to be in place is creating individual passwords for the employees. If they are to go public, investors will want a certain level of protection and security around the company. If you have a generic password, you have no way of tracking who is changing what data. Once they can install individual passwords, they will be able to control the access that employees have and track their movements through their systems.

2. LJB Company is doing a few things correctly. It is a good sign that they are performing monthly bank reconciliation, regardless of who is doing it. Reconciliations should be mandatory in every company to make sure that transactions are being accounted for correctly. Another thing the company is doing right is the new policy of the President and the accountant interviewing...