Implementation of internal control is an integral part of any organization business and financial policies and procedures. Implementation of internal control helps the organization to protect itself from resources waste, fraud and inefficiency. It also helps the company to ensure there is accuracy and accountability in its operations. When implemented, the controls help a company to evaluate the performance level of all departments in the company while ensuring compliance to policies and procedures of the companies (Hall, 2003).This paper analyses the practices, policies and procedures of LJB Company in regard to the controls policies it has implemented or should implement in preparation of going public.
New internal control measurements needed for going public
A company should install security measures to ensure that their assets are secure. This is both a preventive and detective internal control procedure. The company should restrict access to computers and other company assets and inventories. This controls measure allows a company to perform asset auditing periodically (Sampson, 1999). This control is necessary for a public company because it has to employ large number of staff. It is not easy to manage staff members when there are no access restriction measures.
The company should also implement segregation of duties policy as a preventive measure. This is done in order to reduce risk factor as a result of inappropriate actions. In implementation of this policy, duties in financial department should be divided among different people because this is a department where such errors of inappropriate booking occur. The different people would include one for giving authorizations for transactions, one for recording transactions and one who keeps custody of assets of that department (Sampson, 1999). This would be necessary for a company because going public means increasing their transactions activities. These would make it possible for in appropriation if one person is responsible for handling all transactions.
The company, in case it was to go public, would need to control the personnel it employs. This is a preventive measure because the company is able to make sure that its personnel are trustworthy and that their jobs are clearly stated in job description and procedural manuals (Hall, 2003). They should also be able to screen their employees well to make sure that they know the past of the person they employ to avoid embarrassment, risk and committing of crime within their premises.
It is necessary to use indelible ink in printing of checks as a financial control measure and a security measure to avoid fraud. The company would need to ensure checks are not altered in prevention of financial fraud on going public.
What the company is doing right
The company adheres to the rule of reconciliation. Reconciliation is performed to validate that only legitimate transactions have taken place and that the amount used is accurately calculated. Reconciliation also involves matching cash flows to activities conducted (Hightower, 2009). The company accountant does bank reconciliations to ensure that cash inflow and activities match. This is a good thing because it shows the company how cash flow between the bank and the company and for what activities.
As a security measure, the company also made ensure that no fraud can happen when orders are made. Security measure in purchasing of goods is necessary because it allows the company to ensure that transactions are genuine and the goods ordered are delivered (Hightower, 2009). The financial reporting control is implemented in this case where the accountant has introduced use of pre-numbered invoices to ensure smoothness of financial reporting in the company. The pre-numbered invoice is a good measure for the company because the invoice number is used to identify transactions.
The company also has implemented safety of finances in that the accountant locks up the checks in a safe in his office. Use of safes is necessary to ensure that non-authorized access to sensitive information and materials is restricted.
What the company is doing wrong
The company does not adhere to monitoring control. As a measure of management control, the company should implement effective monitoring and supervisory procedures. This would help the management to make decisions because work reports can be made available to them in a timely manner. The management can also be able to avoid unpleasant actions in the premises because of good monitoring and supervisory procedures (Trenerry, 1999). If the management control monitoring procedure was implemented, the company would have avoided embarrassment caused by the actions of one of the employs.
The company does also not implement internal auditing procedures as a measure of security and management control. The company’s management has entrusted one person to handle a whole department of finances alone. This is based on their trust for the individual which is a good practice to be trustful of employees. However the company should still install an auditing department which is independent of the financial department to ensure that things are as accounted for by the accountant.
The company also lacks to adhere to segregation of duties policies (Sampson, 1999). The petty cash monitoring could also become effective with segregation of duties in the department responsible for handling finances of the company. Work would also become manageable for the accountant. The company should also implement security measures towards access of the company’s assets and information. They should for instance give personal passwords for access to the computer, printers and photocopiers.