You have a client, LBJ Company, with a lean organization and these practices:
- Accountant purchases all of the supplies and pays for these purchases.
- Accountant receives the checks and completes the monthly bank reconciliation.
- All employees have access to petty cash and are asked to only place a note if they use any of the cash.
- Accountant picks up paychecks and they are left in his office for pick-up. Before he leaves for the weekend, he will move the checks into a safe in his office.
- Accountant has recently started using pre-numbered invoices.
- The president is considering buying an indelible ink machine to print their checks.
- The president expressed his frustration about a recent hire who was a felon because both he and the accountant both interview and approve all of the new hires.
Explain the impact on internal controls if a company decides to "go public."
What is the company doing right? Should they buy the indelible ink machine?
What is the company is doing wrong? Make recommendations for improvement.
Be sure to reference the applicable internal-control principles.