Internal control, Internal check and

Internal Audit

Lalatendu Mishra

Internal Control System

It includes control policies and procedures,

which emanate from Board of Directors
/Management
Performing functions effectively

Objectives of Internal Control

System

Adherence to policies and procedure

Safeguarding of assets

Prevention and Detection of fraud and errors

Accuracy and completeness

Timely preparation of reliable financial

information

Inherent limitations of internal

control

Benefit expected from a control may not

commensurate with cost of implementation

Potential of human error

Possibility of collusion

Possibility that a person responsible or

exercising control could abuse the authority
Manipulation by management

Components of Internal Control

System

Accounting Control

Control Environment

Control Procedure

Supervision

Advantages of Internal control

Accurate and reliable data

It ensures that the policies and procedures
prescribed by the management are followed by
the employees
It promotes operational efficiency
It helps the organization to attain its goal
effectively
It safeguards the assets and the records of the
business

Internal Check
- Part of internal control
-It is the built-in-check in accounting process
itself
-arrangement or system : the work of one person
is automatically checked by another

Objectives of Internal Control

Fixing up responsibility

Work of one is automatically checked by other

Workload distribution, rotation in duties and

break in monotony
Each aspect is recorded by different person :
minimizing and preventing error

Advantages of internal check

Fixation of responsibility

Increase efficiency of clerks

Prevention of errors and frauds

Reliability of information

Reduces the workload of auditor

Increases the profitability of the business

Internal control and Internal check

Scope

The whole
system of
control

System of
allocating
duties

Objective

To achieve
objective

To prevent
fraud and
error, fixing
responsibility
etc

Internal control and Internal check

Flexibility

Reviewed
occasionally

Stable for
certain
period: less
flexible

Internal Audit
i)An important element of internal control system
ii)An independent management function
iii)Continuous and critical appraisal of the
function of the entity

Objective Internal Audit

To determine and report on appropriateness of

internal control: safeguarding and detecting
fraud and error
To review compliance with policies, plans,
procedures, laws and regulations
To review management information system:

Objective Internal Audit

-To review the organization structure: authority
and responsibility, span of control, unity of
command, flow of information
-To appraise the economy and efficiency with
which resources are employed
-To review accomplishment of goals and
objectives: standard, deviation and
underestimation

Internal Audit and Internal Check

Meaning

Object

Independent
An
review of
arrangement
operation and of duties:
records
automatically
check
Detect fraud
Prevent fraud

Internal Audit and Internal Check

Staff
Staff specially
requirement
assigned

No special staff

Timing

simultaneous

A postmortem

Internal Audit and Internal Check

Submission of To
To the
report
management
departmental
head every
day

Internal Check for Credit Sales

i) Accepting customer order
ii)Credit approval
Iii) Issue of merchandise
iv)Despatch of goods
v)Billing customer
vi)Recording the sales invoice and sending
statements to customers
vii)Granting of write offs and credits

Internal Check for Credit Sales

Function: Credit
approval

Department/ Unit:
Credit

Related Activities:
Credit worthiness,
credit limit, reference
from

Documents or records:
stamping approval,
customer credit file

Internal Check for Credit Sales

Function: issue of
merchandise

Department/unit:
warehouse or
production
department's
warehouse
Related Activities :issue Documents or records:
goods to despatch
Sales order ( for
department
stamping the issue of
goods)

Internal Check for Credit Sales

Function: Despatch of
goods

Department/unit:
Despatch

Related Activities :

Documents or records:

Packaging of goods
and arranges
transportation for
despatch

Goods outwards notes;

acknowledgment
issued by transport

Internal Check for Credit Sales

Function: billing
customer

Department/ unit:

Related Activities :

Documents or records:
sales journal
summary sales report

Billing or billing unit of

finance department

despatch

Internal Check for Credit Sales

Function: Recording
the sales invoice and
sending statements
to customer

Department/unit:
finance department

Related Activities :

Documents or records:

Records sales,invoice Cash receipts monthly

against debtor;record
statement
payments and sends
statements to
customer

Internal Check for Credit Sales

Function: Granting of
write offs and credits

Department/unit:
depending
circumstances

Related Activities : to
Documents or records:
write off receivables
Goods return notes;
and approval of credit
write off authorisation
notes

Internal Check with regard to

payment of wages and salaries
1- Personnel hiring
2-Time-keeping
3-Preparing the payroll
4-Distribution of wages and salaries
5-Preparation of returns

Internal Check with regard to

payment of wages and salaries
Function: Personnel
hiring

Department/unit:
Personnel

Related Activities :
Hiring, transfer,
terminates the
employees and
maintains personnel
records

Documents or records:
personnel files

Internal Check with regard to

payment of wages and salaries
Function: Time keeping Department/unit :
Production

Related Activities :

Documents or records:

Number of hour, time

clock, time report by
the supervisor

Time report

Internal Check with regard to

payment of wages and salaries
Function: Preparing
payroll

Department/unit:
Payroll

Related Activities
Documents or records:
:salary statement and Wage sheet, cheques,
wage sheet
salary statements,
distribution,
scheduled wages and
salary records

Internal Check with regard to

payment of wages and salaries
Function: distribution of Department/unit:
wages and salaries
Any person who has no
role in pay roll
Related Activities :

Documents or records:

Temporary and regular Authorization letters

worker, maintaining
wage and salary
record

Internal Check with regard to

payment of wages and salaries
Function: Preparation
of Return

Department/unit:

Related Activities :

Documents or records:

preparation of
statement of income
statement of income
tax

Form 16A; provident

fund statements etc.

Payroll or finance

Inventory
- located at a convenient place
-Goods received Note: triplicate( purchase,
accounts, stores)
-storing in the allotted racks
-bin cards
-stock taking: bin card and stock ledger
-gate pass to the authorized person
-issue against requisitions
-Material returned note