Internal check is a method that organizes the system of a factory or a concern. The duties of employees are organised in such a way that what one person does is immediately checked by another person. In this way the risk of error and fraud is lower (there is a possibility of collusion between employees). It is a kind of division of labour. This minimises the organisation of crime, unless employees want to cheat the boss together.
An internal check, in which the methods are defined in such a way that the procedures are not under the control of any person - that, on the contrary, the work of one employee overlaps with the work of another and that the company audit is carried out continuously by employees.
It is a system of procedures, mechanisms and rules that support management's management and seek to ensure that the unit's objectives are achieved.
This control is a special legal control that applies to different groups of recipients in different situations. They are connected by a common denominator: an organizational unit of the public finance sector.
In business, control is a tool that uses resources and opportunities to increase profits. All operations are carried out with the help of people and equipment. (The Institute of Chartered Accountants of India, 2003).
"Control is a basic human requirement and it has existed throughout the ages in different facets of human activity. Business as such is a complex process and has grown even more complex with the technological advancement of the society. The formalisation of the concept of internal control in the sphere of business administration is a comparatively recent phenomenon."(The Institute of Chartered Accountants of India, 2003).
Elements of internal check
- Inspections shall operate as part of the system.
- Introduction of transaction control on an ongoing basis.
- Each person's work overlaps with that of another person.
The purpose of the split is that no employee has sole control over the transactions.
How does it work?
There should be an appropriate internal check system for all transactions within the organisation. This is due to the fact that a large proportion of fraud is related to cash. The auditor must become familiar with the internal control system. The responsibilities related to cash should be shared so that there can be automatic control of the different people associated with the money section.
Payments should be made by cheques authorised and signed by the persons responsible. Unused checkbooks should be kept in a safe place. Small amounts of money should be included in the advance payment system. The coupons should be numbered and folded in order. The cash book should be checked independently.
An internal check is a routine check on transactions. The accuracy of transactions and the accounting system, which are recorded in the accounting system, are important. This control is about detecting errors and achieving efficiency in recording transactions. This is an independent action carried out in an organization to review operations. An internal check is a service that is provided to an organization.(Pcaob, Auditing standard)
- Confirmation that the commitments which the organisation had to fulfil have been fulfilled by the organisation in connection with its legitimate activities.
- Detection and prevention of fraud that may occur within the organisation.
- Make sure that the accounting rules are followed.
- Verification of the correctness of financial accounts.
- Verification of documents submitted to management by employees.
- Possible search for measures to improve the situation.
- Special management enquiry.
How to prepare?
In small organisations, the management often carries out a number of checks, which are important for a positive internal control process. This can be helpful and the internal control will end up well. (Pcaob, An audit of internal control over financial reporting that is integrated with an audit of financial statements: guidance for auditors of smaller public companies).
- Public company accounting oversight board, Staff Views, 2009, An audit of internal control over financial reporting that is integrated with an audit of financial statements: guidance for auditors of smaller public companies.
- Public company accounting oversight board, 2007, Auditing standard.
- The Institute of Chartered Accountants of India, 2003, Internal Control.
Author: Aleksandra Jasińska