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INTERNAL CHECK. C. P. Mansoor Ahmed M. Com PGDBA. Internal Control. Size – Operation

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INTERNAL CHECK

C. P. Mansoor Ahmed M. Com PGDBA


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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.”


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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


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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.”


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Good INTERNAL CHECK

  • Division of Work

  • Job Rotation

  • Authority Levels

  • Separation of Custody and Recording

  • Accounting Controls


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Vouching of CASH Transaction

OBJECTIVES:

  • All Vouchers are Accounted

  • No Fraudulent Payment is Made

  • All Receipt & Payment are properly recorded

  • Verify Cash in Hand & Cash at Bank


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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.


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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


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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


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Cash Book

Debit

Credit

  • 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


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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.


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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


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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


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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


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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


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Internal Check with regard to WAGES

  • Time Records

  • Piece Work Records

  • Preparation of Wage Sheet

  • Payment of Wages


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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



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