In business concerns there are chances of misapporopriation and manipulation of accounts. In order to overcome such irregularities and to prevent or minimise the occurrence of errors and frauds, a checking system is designed to have a check on the irregularities. Such a check which operates continuously as part of the routine system is called as Internal Check. This chapter highlights the principles of good internal check system and explains in detail the procedure of internal check with regards to cash and trading transactions.
Meaning Of Internal Check
The term internal check refers to allocation of duties to the employees in an organisation in such a way that the work of one person is automatically and independently checked by the other person from the beginning to the end. It denotes such an arrangement of duties among the staff that the work performed by one individual is independently checked by another in the routine course, such that errors and verified passed Payment made frauds are prevented or discovered. Under the system of internal check, care is taken to ensure that no one person handles a transaction completely from beginning to end and the work of every person is in the ordinary course checked by another person.
• L.R. Disksee defined Internal Check as, “Internal Check is an arrangement of accounting routine that errors and frauds are automatically prevented or discovered by the very operation of book-keeping itself.”
• According to F.R.M D epaula, “An internal check means practically a continuous internal audit carried on by the staff itself, by means of which the work of each individual is ndependently checked by the other members of the staff”.
• According to Speicer and Pegler, “A system of internal check is an arrangement of staff duties whereby no one person is allowed to carry through and to record every aspect of the 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 the minimum”.
Principles (or) Features of Good Internal Check System
1. Division of Work:
Division of work refers to dividing the total work among various staffs is such a way that no single person is allowed to perform the work from the beginning to the end. The work should be allocated to the employee based on the capacity of each person.
2. Authority and Responsibility:
Authority, duties and responsibilities of each person should be clearly defined and there should not be any overlapping or duplication of duties and responsibilities.
3. Automatic Check:
Work allocated to the staff should be in such a way that the work performed by one person is automatically checked by another person.
4. Rotation of Employees:
A good system of internal check should provide transfer or rotation of employees from performing one work to another at frequent intervals.
5. Proper Training to Employees:
An effective system of internal check should carefully select the employees to the organization. The employees should be properly trained and clear instructions should be given to them to perform their work in an effective and efficient manner.
6. Proper system of Documentation:
Internal check system should provide for proper system of filing vouchers, correspondences etc. in a systematic manner.
7. Periodical Review:
The system of internal check should at frequent intervals (be reviewed) and suitable changes should be introduced.
8. Usage of Electronic Equipment:
The system of internal check should provide for usage of labour saving electronic devices such as calculating machines, personal computers, time recording clocks, book-keeping machines etc. The proper training should also be given to the employees for using these devices.