Internal Control Case Study

Internal Control

In the United States, all corporations planning to go public have to maintain an adequate internal control system. LJB is a small company that does local distribution and wants to go public. The president has decided to get an independent audit firm to carry out the assessment while identifying its areas of weakness. In case failure is reported by this audit firm, it could be fined or the officers could go to prison. Internal controls help in detecting any errors in the report from accounts and also protect assets. This also helps in efficiencies as law and order is followed by the company operations (Tysiac 2012).

There have been human errors that are caused by over working or wrong assumptions by members of staff. There are also some fraudulent human beings who can rip off a company if it's not well protected internally. This allows the law to enforce external auditors before the company goes public to ensure there are no risks involved. It is vital that the auditors report fully on the effectiveness and reliability of those controls set up by the company so that the public can build trust in its financial statements. While some companies feel that the external auditors are expensive, they should realize the cost of internal controls does not weigh more than the benefits. Dishonest employees are some of the human factors that can bring down a company.Some of the internal controls that the company should consider before going public include broad planning and preparation (Tysiac 2012). Internal control principles should fully be applied in order to safeguard the company. Having faith in the long-term employees is important. However, precautions are vital especially in accounting to avoid temptations. Human error through fatigue, negligence or misjudgment may happen in such a company. Having only one accountant who serves as treasure and the controller is risky and that's why assisting officer would be important. That way the responsibilities will be shared in case of any cash lost. The purchasing officer should be different from the accountant to avoid any bias in allowing bidding. The control of cash flow will also be an important internal control. Pay checks should be dispatched instantly to the employees. A committee should also be set up to interview and check the credibility of the employees. Using an indelible ink machine is an internal control method that helps control documents. Human fraud is common in companies hence the importance of internal control audit.

The company has been right in trusting their employees. This is usually a motivation for the members of staff and it normally enhances their output. The principal of bonding employees has been well applied in this particular case. The accountant is a company's asset considering how he multi-tasks.….....