i. INTERNAL CONTROL MEANING AND DEFINITION
THE COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF ENGLAND AND WALES “ the whole system of control financial and otherwise, established by the management in order to carry on the business of the company in an orderly manner, safeguard its assets and secure as far as possible the accuracy and reliability of its records.” It is the whole system of controls established by the management for the proper conduct of the various activities of the business with the help of – Accounting control Quality control Work standard Budgetary control Periodic reporting Internal check Internal audit Policy appraisals Quantitative control
FUNDAMENTAL PRINCIPLES OF INTERNAL CONTROL
1. The work should be so divided between persons in such a way that the work done by one person is automatically checked by the other. 2. The collusion between one person doing a work and the other person doing work should be avoided. 3. The clerk in charge of journal shouldn’t have access to ledger or vice versa. 4. The work of the staff should be changed from time to time.
MEANING OF INTERNAL CHECK
The system is based on the principle of division of work or labour that is the performance of each individual in an organisation, is checked automatically, by another and the chances of occurrence of errors or those of their remaining undetected are greatly reduced. SPICER and PEGLER “internal check is an arrangement of staff duties whereby no one person is allowed to carry through and record every aspect of a transaction so that, without collusion between two or more persons, fraud is prevented and at the same time possibilities of errors are reduced to a minimum.”
1. 2. 3. 4.
OBJECTS OF INTERNAL CHECK
To eliminate and detect the acts of fraud and error. To prevent the misappropriation of cash or goods. To exercise moral pressure over the staff members. Since the work is divided into small units, it Increases accountability and responsibilities of the employees. 5. The system enjoys proper division of work and also the work of employees can be changed from time to time. 6. If an enterprise is operating an effective system of internal check, its books, accounts and other records can be readily relied upon. So the auditor can go for selective checking instead of detailed checking. 7. Preparation of final accounts is easily prepare able.
INTERNAL CHECK WITH REGARD TO WAGES
1. Maintenance of wage records – a. Time record Normally the workers are paid on the basis of time spent, thus the time period should be recorded. The following guidelines should be followed – o A separate wage department should be set up under responsible officers. o For every worker, a separate card should be maintained. For the recording the time following methods are used – o Time recording clock – when the worker enters and exits from the gate, they are required to insert his card on the slot of the clock in order to record the time. o Punching machine – each worker will be provided with a card containing his name, department, identity number, etc and they are required to punch the card while entering and leaving. o Attendance registers – under this system every employee is required to put his signature before a specified time in the morning and after a specified time in the evening. The main intention to is ensure that the workers are in the office during the office hours. o Computer – an identity card is provided to every employee of the firm. They are required to sweep the card in the computer controlled machine while entry and exit. b. Piece work record Under this system wages are paid according to the actual performance of the employees. The actual work done by a worker should be recorded in a card, countersigned by the foreman and stores keeper, which will ultimately be spent to quality control. Overtime record – under ordinary conditions, no...