93-1 Oceanview Marine Company Items for Management Letter December 31, 2018 1. The company pays significant amounts of dividends because of the passive ownership interest of Southeastern Enterprises. These dividends are not deductible for income tax purposes. Purchasing the stock of these outside investors, by borrowing against equity, could eliminate the need for dividends. Alternatively, the company could consider becoming an S Corporation. However, this option should be carefully evaluated in light of the company's plans to go public in the future. 2. During our tests of internal controls over sales transactions, we noted that, on occasion, merchandise is shipped to customers without prior credit approval. We recommend that steps be taken to ensure that all shipments are supported by approved customer orders and authorized shipping documents, and that all such approvals be made prior to shipment. In addition, we recommend that management implement an internal verification policy to check for proper debit/credit classification for sales transactions. 3. During our observation of the physical inventory count taken by your employees, we noted that approximately $11,000 of obsolete inventory was included in the count. We recommend that on an annual basis, all obsolete inventory be physically segregated from the rest of the inventory prior to the year-end count and that procedures be implemented to remove obsolete inventory from the general ledger. 4. During our observation of the physical inventory count, we also noted that the parts storeroom did not appear to be adequately secured. Several of the storage areas were disorganized, and the storeroom did not have locks on all entrances. We recommend that you install proper locks on all entrances and that each storage area be better organized to increase the likelihood of an accurate count and decrease the risk of loss. 5