Dear LJB Company President:
If LJB Company wants to go public in the future, they must comply with the Sarbanes-Oxley Act (SOX). “Under SOX, all publicly traded U.S. corporations are required to maintain an adequate system of internal control” (Kimmel, WEygandy, & Kieso, p. 337 2013). Internal controls are the methods and measures that need to be followed in the organization to protect assets and increase efficiency (Kimmel, WEygandy, & Kieso, 2013).
There are five components of internal controls:
1. A control environment- it is up to top management to ensure the organization has integrity and there is no unethical behaviors.
2. Risk assessment- the company must find and analyze the factors that may create risks and determine how to manage those risks.
3. Control activities- need to be put in place to reduce fraud. Management needs to have policies and procedures to address risks faced by the company.
4. Information and communication- Communication is important up and down the organization.
5. Monitoring- internal control systems must be monitored periodically for adequacy (Kimmel, WEygandy, & Kieso, 2013).
Upon reviewing LBJ Company, I noticed a few things that are being done correctly. The pay checks being locked up at the end of the day is a great security measure. This limited access to the pay checks and keeps the checks from being susceptible to theft. The use of an indelible ink machine would create physical control. The machine will allow for the company to print the checks with a reduced chance of fraud (Kimmel, WEygandy, & Kieso, 2013).
While reviewing LBJ Company, I also found a few things that are