What is Internal Check? And its objectives and essentially in Auditing.
Internal check denotes such an arrangement of duties among the staff that the work performed by one individual is independently checked by another in a routine course. Under the system of Internal check, care is taken to ensure that no one person alone handles a transaction completely from the beginning to the end and the work of every person is checked by another person in the same or the other department.
According to Spicer and Pegler, Internal check is an arrangement of staff duties whereby no one person is allowed to carry through and to record every aspect of a transaction so that, without collusion between two or more persons, fraud is prevented and at the same time the possibilities of errors are reduced to a minimum. According to De Paulas, An internal check means practically a continuous internal audit carried on by itself, by means of which the work of each individual independently checked by other members of the staff.
The system of Internal Check is based on the principle of Division of Labor. The method involves mainly four things:
- The work is properly divided in such a way that all duties are assigned to different clerks.
- The clerk gets the work load according to their capacities and qualifications.
- One person does not perform any single task from the beginning to the end.
- The work done by one clerk is checked independently and automatically by another.
Objectives of Internal Control System.
- To allocate duties and responsibilities of every clerk in such a, way that he may be held responsible for a particular error or fraud.
- To minimize the possibilities of errors frauds or irregularities.
- To enhance the efficiency of clerks in a business as the assignment of duties is based on the principle of division of labor.
- To exercise moral pressure over staff.
- To distribute work in such a way that no business transaction is left for recording.
- To prepare final accounts with ease and efficiency as an efficient system of internal check can make accounts more regular and reliable.
Essential of a Good Internal Check System.
- The authority and responsibility of the staff should be clearly defined.
- There should not be any duplication of authority or responsibility at any level.
- Division of work should be according to the capacities, qualification and experience.
- There should be a proper filing system for vouchers and correspondence.
- Self-balancing system of ledger should be used.
- There should be frequent stock taking and perpetual inventory control system.
- Duties of the members of staff should be changed from time to time.
- Correspondence with the debtors and creditors should be done by some responsible person.
- All cash, cheques, drafts etc. received after banking hours should be kept in the safe custody by some responsible official and deposited on the next working day in the bank.
- All the letters and other mail should be entered in a register and from there it should be sent to the department concerned under acknowledgement.
- The work should be divided in such a manner that the work of one employee is complementary to the work of another employee.