The business houses have several departments to transact different transactions. Every department is assigned a number of staff to process the work of the department. The work of the department gets distributed among the members of the department.
The work is not entrusted to a single person but gets distributed among the different staff in a sequential order in such a way that the work of one will automatically get verified in the course of the transaction by another. One man will not be made responsible for the whole work. Such a distribution of work is made only to avoid errors and frauds. This method of distribution of work is referred as internal check.
Definitions of Internal Check
ACCORDING TO F.R.M. DE PAULA,
“An internal check means practically a continuous internal audit carried on by the staff itself, by mean of which the work of each individual is checked by the other members of the staff.”
ACCORDING TO SPICER AND PEGLER,
“A system of internal check is an arrangement of staff duties whereby no one person is allowed to carry and to record every aspect of the transaction, so that without collusion between two or more person, fraud is prevented and at the same time the possibilities of errors are reduced to the minimum.”
ACCORDING TO L.R. DICKSEE,
“Internal check may be defined such an arrangement of accounting routine that error and frauds are automatically prevented or discovered by the very operation of book-keeping itself.”
ACCORDING TO THE INSTITUTE OF CHARTERED ACCOUNTANTS OF ENGLAND AND WALES,
“Internal check implies a system of instituting checks on the day-to-day transaction which operate continuously as part of the routine system whereby the work of one person is proved independently or is complementary to the work of another, the object being the prevention or early detection of errors or frauds.”
ACCORDING TO RONALD A IRISH,
“Internal check refers to the organization of office duties in such a way as to prevent or disclose both errors and frauds.
Objectives of Internal Check
- Allocation of duties:
By the use of internal check duties of every staff member is allocated according to their ability and skill.
- Fixing the responsibility:
Against the errors and frauds the duties the responsibility can fixed because duties are fixed of every staff member.
- Easy detection of errors and frauds:
If any error or fraud is committed it can be easily detected because an efficient system of internal check is there.
- To minimize the possibilities of errors and frauds:
Because the duties are allocated in such a way that the work of every member is automatically review therefore the chances of errors and frauds are minimized.
- Enhance the efficiency:
To enhance the efficiency of every clerk in a business as the assignment of duties is base on the principle of division of labor.
- Complete record:
In internal check the work is distributed among the members in such a way that no business transaction is left unrecorded.
- Preparation of final accounts:
An efficient system of internal check can make the accounts more regular and reliable therefore the final accounts can be prepared with ease and efficiency.
- Moral pressure:
An efficient system of internal check imposes a moral pressure on every staff member therefore he keeps his work up-to-date.
Features or Principles of good Internal Check System
The features or elements of a good internal check system are mentioned below:
- Fixed responsibility:
The main feature of a good internal check system is that the responsibility of each individual must be properly defined and fixed. There should be a schedule of duties of every employee. There should be a proper arrangement to hold the defaulters responsible.
- Division of work:
There should be a proper division of responsibilities of the members of staff. The fundamental principle of division of labor is that there should be segregation of responsibilities for carrying on the transactions and recording the same.
- Standard forms:
There should be a standard, ruling and arrangement of forms and accounting records with numbering etc.
- Appointment of educated and trained persons:
For an efficient system of internal check, the persons to be appointed should be educated and trained. If the appointed persons are not trained then they can be made efficient through training.
- Appointment of honest persons:
For an efficient system of internal check, the persons to be appointed should be honest. Persons should not be appointed on the basis of approach or pressure.
- Rotation of employees:
Where the employees are in large number, there should be internal transfers of the members of staff from time to time from one department or job to another. As far as practicable, they should not be allowed to do the same work for long.
- Separation of accounting and control:
This is also an important feature of an efficient system of internal check. No person should be able to establish accountability over his own operations.
An adequate safeguard be prescribed to keep unused receipts, cheque books, files, bills etc. to avoid their misuse.
- Use of mechanized method:
As far as possible and keeping in view the requirements of the concern the mechanised system of accounting should be adopted so that the over writing or eraser can be avoided.
- Personal care:
The senior and responsible officials should take personal care regarding receipts and payments of cash, issue of goods, valuation of stocks, etc.
- Use of self-balancing method:
The self-balancing method should be used in accounts department so that the employees may not get any information about combined ledgers. The total accounts should be under the control of a responsible official of the concern.
An efficient system of internal check should be flexible so that it may be changed according to the changing requirements of the concern.
- Proper use of assets:
It is also important feature of a good system of internal check. Proper use of assets be ensured and all unauthorized should be prevented.
- Control of goods:
For purchases made on credit, proper system should be introduced for placing orders and receiving goods. Proper record of the goods should be maintained. The goods should not be allowed out of the premises of the concern without the permission of any responsible person.
- Control on receipts and payments of cash:
Receipts and payments of cash should be controlled very carefully. The cashier should be under control. For petty cash transactions the imprest system must be carefully followed.
- Filing system:
There should be a proper filing system to file all the letters, documents, vouchers etc.
The system of internal check should be reviewed from time to time so that the improvements may be introduced.