1

INTERNAL CHECK

C. P. Mansoor Ahmed M. Com PGDBA

2

Internal Control

Size – Operation “Internal Control is best regarded as the

whole system of controls, financial and otherwise, established by the management in the conduct of a business including internal check, internal audit and other forms of control.”

3

Internal Control

Accounting & Administrative Controls – Efficient and orderly conduct of transaction Safeguarding the assets in adherence to

management policies Detection & Prevention of Errors & Frauds Ensuring Accuracy, Completeness,

Reliability and Timely preparation of Accounting Data

4

Internal Check

One of the Modes of Implementing Internal Control

“a system under which the accounting methods and details of an establishment are so laid out that the accounts and the procedure are not under the absolute and independent control of any person – that, on the contrary, the work of one employee is complementary to that of another – and that a continuous audit of the business is made by the employees.”

5

Good INTERNAL CHECK

Division of Work Job Rotation Authority Levels Separation of Custody and Recording Accounting Controls

6

Vouching of CASH TransactionOBJECTIVES: All Vouchers are Accounted No Fraudulent Payment is Made All Receipt & Payment are properly

recorded Verify Cash in Hand & Cash at Bank

7

Vouching – Voucher

Voucher:

it is a documentary evidence supporting the transaction in the Books of Accounts.

Verification of Transaction with counterfoils,

Intelligence, Critical Bent of Mind, Common Sense, Observation.

8

Vouching

Voucher Numbering – Ordering Attention to dates, names & amount Stamped, Initials etc Special Attention: Personal Name, Partner, Director Duly Signed, Authorized Duly Stamped Nature of Receipts & Payments Elucidation Scrutinize the Duplicate Vouchers Avoid involvement of Members of Client Staff Receipted Invoice Printed Receipts as Voucher Payments of Rent Rates & Taxes – Advances - Adjustments

9

Internal Check as regards to Cash

Check internal operation

Access to books of accounts

Receipts against cash Rough Cash Book Remittances – opened before officer Automatic tills or cash register Deposit all cash receipt every day BRS prepared regularly Issue of Cheque – authorized by the officer Independent check of Castings of Cash Book Preparation of Wage sheet Payment by cheques except petty Collection by travellers

10

Cash Book

Opening Balance

Cash Sales

Receipts from Debtors

Income from Interest, Dividends etc.,

Loans

Rents Received

Bills Receivable

Commission

Sale of Investment

Bad Debt

Dividends

Subscription

Insurance Claim Money

Share Capital

Sale of Fixed Assets

Miscellaneous Receipts

Payment to Creditors

Wages

Capital Expenditure

Loans

Salaries

Agent’s & Traveler’s Commission

Travelling Allowance

Insurance of Premiums

Bills of Payable

Bills Receivable Discounted & Dishonoured

Freight Carriage & Custom Duties

Bank Charges

Partner’s Drawings

Postage

Petty Cash

Debit Credit

11

Internal Check as regard to PURCHASES

Orders – 2 copies (Supplier & Reference) On Receipt – Goods Receipt Book Invoice – Goods Receipt Book Verified Check Calculations in Invoice Invoice Copy – Person in charge Clerk – Purchases Book Initial the invoice copy.

12

Duty of an Auditor – CREDIT PURCHASES

Return:

Credit Note

Purchase Return Journal

Return Outwards Book

Gate Keeper’s Outwards Book

In clients name Authorize person in charge Date of Invoice – Period under review Review of Verification Goods on Invoice – Capital Test Check – Purchases Book Expenses Debited to Purchases Account Compare the Books Stamp, Check Mark, Initial Duplicates Credit Conformation Statement

13

Internal Check as regard to SALES Order – Order Received Book (Name,

Particulars of Goods, Date & Mode of Transport)

Copy – Dispatch Department Clerk compares goods in order packed by DD Rate of charge – Responsible officer Preparation of Invoice – 2/3 copies One copy – clerk – sales book One copy – gatekeeper – goods outward book Traveler Sales Man – 3 copies

14

Duties of an Auditor – CREDIT SALES

Reasons for Return

Gatekeeper

Sales Return Book

Credit Note

Review Internal Check System in Place Invoice – Sales Book Compare Order Received Book, Goods Outward Book,

Gatekeeper’s Outward Book, Delivery Note etc Sale of Asset – treated as a ordinary sale Statement of accounts from client Check sales during last days and weeks Cancelled invoice – duplicates Sales Tax & Insurance etc debited & credited

into appropriate accounts Sales to sister concerns and associates Different trade discounts - examined

Goods Sold on Sale or Return System

Goods Sent on Consignment

Packages & Empties

Journal

Bought Ledger

Sales Ledger

Total Accounts & Sectional Balancing

15

Internal Check as Regard to WAGES

Check inclusion for Dummy Workers Errors or Fraud – piece work records Clerical Works Dispensed Employees – Retained Over Stating – Rates Over Stating Hours/days of Work Conversion of unpaid wages Over footing of pay roll sheets Understatement of deduction

16

Internal Check with regard to WAGES

Time Records Piece Work Records

Preparation of Wage Sheet

Payment of Wages

17

Duties of an Auditor - WAGES Check Loop hole Wage Sheet or Wage Book Calculation are Correct Wages payable, paid & unpaid Dummy Workers Initialed ID verification Authorized Number of workers Wage sheet – ESI Card, PF Account Total wages – estimates of costing department Duly signed - comparison Leave register Wage payment vs. advance payment Employment of Casual Labourer Test Check

18

INTERNAL AUDIT