Thank you for contacting our firm regarding your accounting process and internal controls that LBJ currently has in place. I am pleased to be able to evaluate your system and inform you of a more efficient way going forward. As you mentioned LBJ is considering an initial public offering in the future. In doing so, I would like to recommend a variety of internal controls that should be in place when this happens. With these new internal controls in place, and beholden to shareholders, will ensure a smooth accountability process to prevent any possible misappropriation.
As with any public company, LBJ would have to comply with the Sarbanes-Oxley Act. This law was passed in response to a variety of accounting scandals in the early 2000s. The act requires that a public company maintain a system of internal control. These controls will be overseen by yourself, other executives and a board of directors that you will have to form when going public. In making this system accountable to the board of directors, an outside independent auditor will also have to analyze and attest to the adequacy of the internal control system.
There are a few things that you are doing well in regards to internal controls. I commend you on running a lean operation in that you and your accountant are hands on when hiring new employees. This shows that you are committed to hiring the right employees that fit into your organization. Also, your accountant is using pre-numbered invoices to document all of your transactions. This is a good system to keep, but advise you that the accountant should be making entries for all of these invoices. Lastly, your accountant makes sure that all paychecks are in his possession for pick up and those that are not distributed are locked in a safe.
My colleague also mentioned that your accountant would like to buy an indelible ink machine to print your checks. At the moment I do not recommend that you make this purchase for a variety of...