Internal check – It is a system in which all the transactions of the organisation and the related accounting work is divided among the employees in such a manner that the work done by one employee is examined independently by another employee.
According to this system, the work is divided among the employees according to their capabilities and in such a manner that no single employee does any task or transaction from the start to the end. In this manner, the complete accounting work in respect of any transaction is not allotted to any single person from the start to finish.
For example, in an educational institution the work of collecting fees from students in allotted in such a manner that one clerk collects fees from only from commerce students, a second clerk collects fees only from arts students. The fees collected by these clerks is entered into the books of accounts by a different clerk and a different clerk goes to deposit the money into the bank. If any employee commits any error or fraud in his work it is immediately detected by the employee examining his work. In this manner, in a system of internal check each transaction is examined also side by side, and as a result unless two or three employees are not working in collusion, it becomes very difficult to commit frauds.
Features of Elements of Internal Check
(1) This technique is an integrate part of the complete system of internal control.
(2) This technique is related to the division of work among the people maintaining the accounts.
(3) In this technique, no single employee records any transaction from the beginning to the end.
(4) In this technique, the work done by every employee is examined independently by another employee.
(5) In this technique, the work done by one employee is complementary to the workdone by another employee.
(6) The aim of this technique is to develop an automatic system for detection of frauds and errors.
(7) In this technique, the work of book-keeping and accountancy is mechanised to the maximum possible extent.
Objective of Internal Check
(1) To prevent frauds and errors: The main objective of internal check is to establish a system which makes fraud impossible or very difficult to commit and hence employees are dissuaded against committing frauds. In the same manner the prevention of errors is also one of its objectives since in this technique there is provision for compulsory examination of work done by one employee by another.
(2) Determination of responsibility: The determination of responsibilities of employees is also one of the objectives of internal check. In this system work is divided in such a manner so that in case of frauds and errors the related officers can be held responsible.
(3) To prevent omissions in accounting: The aim of this system is to bring about discipline in accounting so that no transaction is omitted from being recorded in the books of accounts.
(4) To increase the efficiency of employees: The aim of the internal check system is to divide the work into various parts and assigning it to those employees who are efficient in doing such work. In this manner, this system is also adopted in order to increase the efficiency of employees.
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(5) Quick preparation of final accounts: The aim of this technique to prepare an organisation structure of the accounting department in such a way that the accounting work can be done in an efficient and error free manner, and at the end of the financial year the final accounts can be prepared as quickly as possible.
(6) To case the audit work: The internal check system is also adopted in order to make the audit work easier. In organisations where this system is implemented the auditor can resort to test checking in his examination.