Internal Control
B-Com Part 2 Auditing Notes
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Chapter 3 - Internal Control
* Internal Audit
* Internal Control
* Internal Check
* Various Types of Internal Control
* Principles of Internal Control
* Objects of Internal Control
* Limitations of Internal Control
* Principles of Internal Check
* Internal Audit
* Internal Control
* Internal Check
* Various Types of Internal Control
* Principles of Internal Control
* Objects of Internal Control
* Limitations of Internal Control
* Principles of Internal Check
Internal Audit
Internal audit is an evaluation and analysis of the business operation conducted by the internal audit staff. (who are employee of the business)It is the part of over all system of internal control established in an organization. "Internal audit is the independent appraisal of activity with in an organization for the review of accouting, financial and other business practices as a protective and constructive arms of management. It is a type of control which functions by measuring and evaluating the effectiveness of other type of controls." Professor Walter B Meigs define internal audit
Internal auditing consist of a continuous, critical review of financial and operating activities by a staff of auditors functioning a full time salaried employees.
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Internal Control
The concept of internal control has evolved gradually over the years, with the greatest development occurring at the beginning of 1940. Not only the complexities of modern business techniques but also the increased size of business units have encouraged the adoption of methods which, while increasing the efficiency of the business, also act as a safeguards against errors and frauds. Furthermore, the regulation of business activities under an efficient system of internal control may obviate the necessity of protracted detailed work by an independent auditor with beneficial results to all parties concerned. Thus the inpetus for development of internal control has come from both management and auditor. The effect on auditing has been to reduce the need of routine mechanical verification of book-keeping, accuracy, permitting substitution of a less time-consuming approach that involves reasoning and judgment and stress on such activities as review, analysis, evaluation and statistical sampling.
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Internal audit is an evaluation and analysis of the business operation conducted by the internal audit staff. (who are employee of the business)It is the part of over all system of internal control established in an organization. "Internal audit is the independent appraisal of activity with in an organization for the review of accouting, financial and other business practices as a protective and constructive arms of management. It is a type of control which functions by measuring and evaluating the effectiveness of other type of controls." Professor Walter B Meigs define internal audit
Internal auditing consist of a continuous, critical review of financial and operating activities by a staff of auditors functioning a full time salaried employees.
_____________________________________
Internal Control
The concept of internal control has evolved gradually over the years, with the greatest development occurring at the beginning of 1940. Not only the complexities of modern business techniques but also the increased size of business units have encouraged the adoption of methods which, while increasing the efficiency of the business, also act as a safeguards against errors and frauds. Furthermore, the regulation of business activities under an efficient system of internal control may obviate the necessity of protracted detailed work by an independent auditor with beneficial results to all parties concerned. Thus the inpetus for development of internal control has come from both management and auditor. The effect on auditing has been to reduce the need of routine mechanical verification of book-keeping, accuracy, permitting substitution of a less time-consuming approach that involves reasoning and judgment and stress on such activities as review, analysis, evaluation and statistical sampling.
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Internal Check
Internal check is an arrangement of duties allocated in such a way that the work of one employee is automatically checked by another. These are no separate staff engaged to carry out the system of internal check. It, in fact, represents only the arrangements of duties of the staff in a way. The system of internal check is devised in such a way that the possibilities of errors, frauds and irregularities are minimized.
Following matters are included in the internal check
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Internal check is an arrangement of duties allocated in such a way that the work of one employee is automatically checked by another. These are no separate staff engaged to carry out the system of internal check. It, in fact, represents only the arrangements of duties of the staff in a way. The system of internal check is devised in such a way that the possibilities of errors, frauds and irregularities are minimized.
Following matters are included in the internal check
- Matters relating to allocation of power.
- Division of work.
- Methods of recording transactions
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Types of Internal Control
1. Organization
Organization is concerned with placement of workers on their jobs. Authority and responsibility go together. The workers are responsible for their activities. The head of department is responsible for looking after the worker of his own department.
2. Segregation of Duties
The segregation of duties is necessary. There are many employees. All aspects of a transaction are not complete by one person. The recording of transaction by many persons can reduce the risk of errors and frauds. The division of duties can improve the working of workers.
3. Physical
The physical internal control is desirable to safeguard assets. The access to assets must be limited. The authorized persons can be allowed to examine the assets. The persons may visit the warehouse or they may release the assets through requisition slips. The assets require lockers, iron safe possession of keys and use of passes of warehouse.
4. Approval
All transaction in any business requires proper approval of responsible person. The limit for approval may be fixed. The creditor recovery officer can approve credit sales. The foreman can approve overtime wages. Purchase officer can approve the purchase of goods.
5. Accounting
The accounting control is concerned with approval of transactions, accurately processing and correctly recording. The control of total, preparation of trail balance reconciliation's and control accounts is necessary. There is examination of vouchers that every aspect is not over looked so far this type of control is concerned.
6. Management
The top-level management can apply certain controls beyond the routine working of business. The management control, include internal audit review of management accounts comparing actual result with budgets, supervisory control and many other review procedure of business functions.
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1. Organization
Organization is concerned with placement of workers on their jobs. Authority and responsibility go together. The workers are responsible for their activities. The head of department is responsible for looking after the worker of his own department.
2. Segregation of Duties
The segregation of duties is necessary. There are many employees. All aspects of a transaction are not complete by one person. The recording of transaction by many persons can reduce the risk of errors and frauds. The division of duties can improve the working of workers.
3. Physical
The physical internal control is desirable to safeguard assets. The access to assets must be limited. The authorized persons can be allowed to examine the assets. The persons may visit the warehouse or they may release the assets through requisition slips. The assets require lockers, iron safe possession of keys and use of passes of warehouse.
4. Approval
All transaction in any business requires proper approval of responsible person. The limit for approval may be fixed. The creditor recovery officer can approve credit sales. The foreman can approve overtime wages. Purchase officer can approve the purchase of goods.
5. Accounting
The accounting control is concerned with approval of transactions, accurately processing and correctly recording. The control of total, preparation of trail balance reconciliation's and control accounts is necessary. There is examination of vouchers that every aspect is not over looked so far this type of control is concerned.
6. Management
The top-level management can apply certain controls beyond the routine working of business. The management control, include internal audit review of management accounts comparing actual result with budgets, supervisory control and many other review procedure of business functions.
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Principles of Internal Control
1. Simple Record and Books
The principal of the internal control is also the simple records such as the record of employees, plant register list of shareholders etc are kept in usual simple manner books should be kept up to date and at regular internals these should be balanced. He different persons should make handling of cash transactions. For instance the cashier should not be allowed to record the cash in the accounts book. He should have no concern with written ledgers.
2. Independent Checking
Another person should independently and automatically check work performed by one person.
3. Principle Relating to Staff
It is also the part of the internal control. The employees are placed on the business according to their ability. The employees are bound for the duties for which they are assigned. Duties of each staff member should be clear and there should be no confusion and doubt in this regard. In case of any staff member absence duties arrangements should be made in advance.
4. Changing
It is also an important principle that no one should handle the transaction from beginning to end, because in this situation there is a chance of fraud. Generally most of the frauds are committed due to this reason.
5. Proper Supervision
It is also a principal of the internal control. All the senior officers have a right to supervise the activities of their juniors. It is necessary for the benefit of the business.
6. Clear Rules
All those rules relating to cash stock receipts and issuance of goods should be very clear and well defined. It should be also checked that the employees should follow their rules properly.
7. Instructions in Writing
All the instructions should be in written form according to the best internal control system.
8. Qualified and Competent Staff
For the better internal control system the qualified staff is necessary. And it should also necessary that the stuff is placed at a proper place.
9. Double System of Accounting
For the internal control the double accounting system is very helpful. No doubt, it is an expensive system but it helps a lot for the internal control.
10. Incentive for Honest Worker
Honest and hardworking person must be encouraged. He should be given some reward in the shape of promotion and cash. This principle is also very effective in improving the internal control.
11. Use of Machines
It is also the principal of the internal control how to use the machines. He has to check either the proper machines have been installed and if it does so the work can be completed in time.
12. Performance of Duties Record
For the best internal control it is necessary that the performance of all the employees must be recorded.
13. Record of Goods and Assets
All the companies assets and property record should be maintained properly. There should be also the security measures for the property.
14. Surety Bonds
To protect the company from fraud and to make the internal control more effective surety bonds can be taken from the employees.
15. Division of Duties
Division of duties is a part of internal control. The employees can be placed on jobs according to their abilities. The duties are assigned to which they are accountable.
16. Rotation of Duties
Rotation of duties is a principle of internal control. An employee must be from one seat another. It is necessary for increasing the efficiency and avoiding the chances of errors and fraud.
17. Division of Work
Division of work is a principle of internal control. The total amount of work is determined. It is divided among the department's branches and sections. It has become possible due to specialization and division of labour.
18. Subsidiary Record
Subsidiary record is a principle of internal control. The detail every account is maintained. Stock of goods may consist of many items. As a whole it is called stock account or stock control account and every group of items can be stated in subsidiary record.
19. Confirmation From Outsiders
The confirmation from outsiders from outsiders is a principle of internal control. The letters may be written to debtors to confirm their accounts balances. There may be positive or negative approach in collecting information from sundry debtors.
20. Checking Physical Existence
The auditor can check the physical existence. He can see the asset in the possession of a responsible officer. He can touch, court and check the items at business premise.
21. Dependent Work
Dependent work is a principle of internal control. One person cannot be allowed to do every aspects of a transaction. The work depends upon many persons. Every person is dependent upon others to perform his duties.
22. Supervision
Supervision is a principle of internal control. The officer, foreman or supervision has the right to look after activities of junior workers. The supervisory control is essential to make the business effective.
23. Internal Audit
Internal audit is a part of internal control. The management can ask expert employees to examine the accounts of the business. It helps the concern to check and frauds. The progress of the entity is disclosed through it.
24. Fidelity Bond
It is an agreement between the issuance of company and the employee. In case of loss the insurance company can pay compensation for loss of cash or goods. The cashier can get insurance from the insurance company.
25. Control Accounts
Control accounts are proposed to check the accuracy of the accounting books and other record. The total debtors accounts and total creditors accounts or sales ledger adjustments and purchase ledger adjustments accounts are prepared.
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1. Simple Record and Books
The principal of the internal control is also the simple records such as the record of employees, plant register list of shareholders etc are kept in usual simple manner books should be kept up to date and at regular internals these should be balanced. He different persons should make handling of cash transactions. For instance the cashier should not be allowed to record the cash in the accounts book. He should have no concern with written ledgers.
2. Independent Checking
Another person should independently and automatically check work performed by one person.
3. Principle Relating to Staff
It is also the part of the internal control. The employees are placed on the business according to their ability. The employees are bound for the duties for which they are assigned. Duties of each staff member should be clear and there should be no confusion and doubt in this regard. In case of any staff member absence duties arrangements should be made in advance.
4. Changing
It is also an important principle that no one should handle the transaction from beginning to end, because in this situation there is a chance of fraud. Generally most of the frauds are committed due to this reason.
5. Proper Supervision
It is also a principal of the internal control. All the senior officers have a right to supervise the activities of their juniors. It is necessary for the benefit of the business.
6. Clear Rules
All those rules relating to cash stock receipts and issuance of goods should be very clear and well defined. It should be also checked that the employees should follow their rules properly.
7. Instructions in Writing
All the instructions should be in written form according to the best internal control system.
8. Qualified and Competent Staff
For the better internal control system the qualified staff is necessary. And it should also necessary that the stuff is placed at a proper place.
9. Double System of Accounting
For the internal control the double accounting system is very helpful. No doubt, it is an expensive system but it helps a lot for the internal control.
10. Incentive for Honest Worker
Honest and hardworking person must be encouraged. He should be given some reward in the shape of promotion and cash. This principle is also very effective in improving the internal control.
11. Use of Machines
It is also the principal of the internal control how to use the machines. He has to check either the proper machines have been installed and if it does so the work can be completed in time.
12. Performance of Duties Record
For the best internal control it is necessary that the performance of all the employees must be recorded.
13. Record of Goods and Assets
All the companies assets and property record should be maintained properly. There should be also the security measures for the property.
14. Surety Bonds
To protect the company from fraud and to make the internal control more effective surety bonds can be taken from the employees.
15. Division of Duties
Division of duties is a part of internal control. The employees can be placed on jobs according to their abilities. The duties are assigned to which they are accountable.
16. Rotation of Duties
Rotation of duties is a principle of internal control. An employee must be from one seat another. It is necessary for increasing the efficiency and avoiding the chances of errors and fraud.
17. Division of Work
Division of work is a principle of internal control. The total amount of work is determined. It is divided among the department's branches and sections. It has become possible due to specialization and division of labour.
18. Subsidiary Record
Subsidiary record is a principle of internal control. The detail every account is maintained. Stock of goods may consist of many items. As a whole it is called stock account or stock control account and every group of items can be stated in subsidiary record.
19. Confirmation From Outsiders
The confirmation from outsiders from outsiders is a principle of internal control. The letters may be written to debtors to confirm their accounts balances. There may be positive or negative approach in collecting information from sundry debtors.
20. Checking Physical Existence
The auditor can check the physical existence. He can see the asset in the possession of a responsible officer. He can touch, court and check the items at business premise.
21. Dependent Work
Dependent work is a principle of internal control. One person cannot be allowed to do every aspects of a transaction. The work depends upon many persons. Every person is dependent upon others to perform his duties.
22. Supervision
Supervision is a principle of internal control. The officer, foreman or supervision has the right to look after activities of junior workers. The supervisory control is essential to make the business effective.
23. Internal Audit
Internal audit is a part of internal control. The management can ask expert employees to examine the accounts of the business. It helps the concern to check and frauds. The progress of the entity is disclosed through it.
24. Fidelity Bond
It is an agreement between the issuance of company and the employee. In case of loss the insurance company can pay compensation for loss of cash or goods. The cashier can get insurance from the insurance company.
25. Control Accounts
Control accounts are proposed to check the accuracy of the accounting books and other record. The total debtors accounts and total creditors accounts or sales ledger adjustments and purchase ledger adjustments accounts are prepared.
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Objects of Internal Control in Detail
1. Assets Protection
The assets are the backbone of any business. These assets are in the custody of some specific officers of the business. The internal control system checks the valuation and protect the assets of the business.
2. Accurate Record
The main object of the internal control is to maintain all records and transactions of the business according to the generally accepted accounting principal.
3. Follow Policies
The purpose of internal control is follow policies of management. The policies are guidelines for obtaining the business objectives. All employees try their best to follow the rules of the game.
4. Prevention of Error
The purpose of internal control is to prevent errors. There may be unintentional mistake due to overwork or carelessness. There is normal load work with every person. Others check the work of one person.
5. Prevention of Frauds
The purpose of internal control is to prevent fraud. It is an intentional misrepresentation of financial information by one or more individuals among management, employees or their parties.
6. Best Use of Resources
The purpose of internal control is the best use of resources. There is a need of optimum combination of resources for maximizing profits. Internal control can point out weakness, which can be removed.
7. Nature of Audit Test
The purpose of internal control is to determine nature and extent of audit test. When there is effective internal control there will be few audit test other wise there is need of through checking.
8. Reliable Record
The purpose of audit is to maintain reliable accounting record. The equal distribution of work among the employees provides complete and reliable record, as it is free from error and fraud.
9. Reduces Work Load
The purpose of internal control is the reduction of workload. The effective internal control can be useful for auditors. They can check few items and remaining items will be treated as checking by the auditor.
10. Location of Errors
The purpose of internal control is the location of errors. There are many types of error, which may be found in the accounting record. The internal control procedures are useful to locate the error in accounting.
11. Detection of Fraud
Detection of fraud is the purpose of internal control. The compliance procedure and substantive procedures can be applied to detect the fraud. Basically it is a management responsibility.
12. Record of Business
Internal control system is also required for the maintainers of the reliable accounting record. Due to the internal control the records are without the errors and frauds.
13. Record of Expenditures
Same way the internal control system keeps the records of all the expenditure of the business and there are fewer chances of errors and frauds.
14. Recording of Transaction
Due to the internal control system all the transactions are recorded properly in the correct account in the proper period.
15. Actual Comparison
The assets and the other records, which are recorded, can be easily compared with the actual existed information.
16. Preparation of Statement
Another object of the internal control is to ensure about the preparation of the financial statement at the proper time as the balance sheet or profit and loss.
17. Management Objectives
The objectives of the system of internal control are to ensure the achieving of the other important management control.
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1. Assets Protection
The assets are the backbone of any business. These assets are in the custody of some specific officers of the business. The internal control system checks the valuation and protect the assets of the business.
2. Accurate Record
The main object of the internal control is to maintain all records and transactions of the business according to the generally accepted accounting principal.
3. Follow Policies
The purpose of internal control is follow policies of management. The policies are guidelines for obtaining the business objectives. All employees try their best to follow the rules of the game.
4. Prevention of Error
The purpose of internal control is to prevent errors. There may be unintentional mistake due to overwork or carelessness. There is normal load work with every person. Others check the work of one person.
5. Prevention of Frauds
The purpose of internal control is to prevent fraud. It is an intentional misrepresentation of financial information by one or more individuals among management, employees or their parties.
6. Best Use of Resources
The purpose of internal control is the best use of resources. There is a need of optimum combination of resources for maximizing profits. Internal control can point out weakness, which can be removed.
7. Nature of Audit Test
The purpose of internal control is to determine nature and extent of audit test. When there is effective internal control there will be few audit test other wise there is need of through checking.
8. Reliable Record
The purpose of audit is to maintain reliable accounting record. The equal distribution of work among the employees provides complete and reliable record, as it is free from error and fraud.
9. Reduces Work Load
The purpose of internal control is the reduction of workload. The effective internal control can be useful for auditors. They can check few items and remaining items will be treated as checking by the auditor.
10. Location of Errors
The purpose of internal control is the location of errors. There are many types of error, which may be found in the accounting record. The internal control procedures are useful to locate the error in accounting.
11. Detection of Fraud
Detection of fraud is the purpose of internal control. The compliance procedure and substantive procedures can be applied to detect the fraud. Basically it is a management responsibility.
12. Record of Business
Internal control system is also required for the maintainers of the reliable accounting record. Due to the internal control the records are without the errors and frauds.
13. Record of Expenditures
Same way the internal control system keeps the records of all the expenditure of the business and there are fewer chances of errors and frauds.
14. Recording of Transaction
Due to the internal control system all the transactions are recorded properly in the correct account in the proper period.
15. Actual Comparison
The assets and the other records, which are recorded, can be easily compared with the actual existed information.
16. Preparation of Statement
Another object of the internal control is to ensure about the preparation of the financial statement at the proper time as the balance sheet or profit and loss.
17. Management Objectives
The objectives of the system of internal control are to ensure the achieving of the other important management control.
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Limitations of Internal Control
1. Cost
The management thinks that cost of a control procedures must not be in excess of potential loss due to error or frauds.
2. Transactions
The internal control tends to be directed a anticipated types of transactions and not at unusual transactions.
3. Error
There is possibility of human error due to carelessness distraction, mistake of judgement or the misunderstanding of instructions.
4. Circumstances
There may be collusion with parties outside the entity employees of the entity. Due to such collusion there is possibility of circumvention of control.
5. Responsibility
There is chance that a person responsible for exercising control could abuse that responsibility, for example, a member of management overriding a control.
6. Conditions
There is possibility that procedure may become inadequate due to changes in conditional and compliance with procedure may deteriorate.
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Principles of Internal Check
1. Sufficient Staff
The principle of internal check is sufficient staff. The employees can be appointed according to the workload. The management can determine the amount of work, which is distributes among the departments. The persons are hired to perform their duties. The overloading can creates trouble for management.
2. Division of Work
Division of work is a principle of internal check. The management can determine the total amount of work. The whole work is divided among departments. The heads of such department are responsible for completion of work according to timetable.
3. Co-Ordination
Coordination is a principle of internal check. All departmental managers are bound to coordinates with other in order to achieve organization objectives. When there is fault in one department, the work of other department suffers. The objectives cannot be achieved. Internal check determines the degree of coordination among the managers.
4. Rotation of Duties
Rotation of duties is a principle of internal check. The workers feel bore by doing the same work from year to year. There is a need of rotation of duties. It is in the interest of concern as well as employees. The efficiency is improved due to changes is duties.
5. Recreation Leave
The recreation leave is a principle of internal check. The employee can check recreation leave. It is necessary for mental health. He can commit fraud as the new employee in his place can disclosed teh matter. The internal check system can work in the interest of business. The weakness is of one person is disclosed due to leave.
6. Responsibility
The responsibility is a principle of internal check. The employee can enjoy recreation leave. It is necessary for mental health. He can enjoy recreation leave. It is necessary for mental health. He cannot commit fraud as the new employee in his place can disclose the matter. There internal check system can work in the interest of business. The weakness in of one person is disclosed due to leave.
7. Automatic Machines
The principles of internal check is that machines must be used to do accounting work if permissible. The machines can do a lot work without delay. The changes of fraud and error are reduced to a minimum. The working of machines improves efficiency of accounting staff.
8. Checking
The principle of internal check is to check the work of other employees. Many persons perform the work. The officers can put his signatures to verify the work done by his subordinate. In this way one work passes many hands. The changes of error and fraud are minimized due to checking and counter checking.
9. Simple
The principle of internal check is simples in working the employees can understand the working of internal check system. A person can work under the supervision of other employees. The line of authority moves from top to bottom level. All workers can understand their duties in the organization.
10. Documents Classification
The classification of documents is the principles of internal check. The business documents are prepared, collected, recorded and placed in proper files. The index is prepared to compile the data. The filing system is useful to place the latter. In case of need the documents are traced at once.
11. Dependent Work
Dependent work is a principle of internal check. The work of one employee is dependent upon others. One work passes in the hand of two or three persons till it is complete. Another person checks the passes done by one person. No person is all in all to start and complete the transactions.
12. Harmony
The principles of internal check are harmony among the employees and departments. The understanding is essential for business goals. The management is to achieve other social and national objectives. The harmony is basis for successful internal check.
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1. Cost
The management thinks that cost of a control procedures must not be in excess of potential loss due to error or frauds.
2. Transactions
The internal control tends to be directed a anticipated types of transactions and not at unusual transactions.
3. Error
There is possibility of human error due to carelessness distraction, mistake of judgement or the misunderstanding of instructions.
4. Circumstances
There may be collusion with parties outside the entity employees of the entity. Due to such collusion there is possibility of circumvention of control.
5. Responsibility
There is chance that a person responsible for exercising control could abuse that responsibility, for example, a member of management overriding a control.
6. Conditions
There is possibility that procedure may become inadequate due to changes in conditional and compliance with procedure may deteriorate.
_________________________________
Principles of Internal Check
1. Sufficient Staff
The principle of internal check is sufficient staff. The employees can be appointed according to the workload. The management can determine the amount of work, which is distributes among the departments. The persons are hired to perform their duties. The overloading can creates trouble for management.
2. Division of Work
Division of work is a principle of internal check. The management can determine the total amount of work. The whole work is divided among departments. The heads of such department are responsible for completion of work according to timetable.
3. Co-Ordination
Coordination is a principle of internal check. All departmental managers are bound to coordinates with other in order to achieve organization objectives. When there is fault in one department, the work of other department suffers. The objectives cannot be achieved. Internal check determines the degree of coordination among the managers.
4. Rotation of Duties
Rotation of duties is a principle of internal check. The workers feel bore by doing the same work from year to year. There is a need of rotation of duties. It is in the interest of concern as well as employees. The efficiency is improved due to changes is duties.
5. Recreation Leave
The recreation leave is a principle of internal check. The employee can check recreation leave. It is necessary for mental health. He can commit fraud as the new employee in his place can disclosed teh matter. The internal check system can work in the interest of business. The weakness is of one person is disclosed due to leave.
6. Responsibility
The responsibility is a principle of internal check. The employee can enjoy recreation leave. It is necessary for mental health. He can enjoy recreation leave. It is necessary for mental health. He cannot commit fraud as the new employee in his place can disclose the matter. There internal check system can work in the interest of business. The weakness in of one person is disclosed due to leave.
7. Automatic Machines
The principles of internal check is that machines must be used to do accounting work if permissible. The machines can do a lot work without delay. The changes of fraud and error are reduced to a minimum. The working of machines improves efficiency of accounting staff.
8. Checking
The principle of internal check is to check the work of other employees. Many persons perform the work. The officers can put his signatures to verify the work done by his subordinate. In this way one work passes many hands. The changes of error and fraud are minimized due to checking and counter checking.
9. Simple
The principle of internal check is simples in working the employees can understand the working of internal check system. A person can work under the supervision of other employees. The line of authority moves from top to bottom level. All workers can understand their duties in the organization.
10. Documents Classification
The classification of documents is the principles of internal check. The business documents are prepared, collected, recorded and placed in proper files. The index is prepared to compile the data. The filing system is useful to place the latter. In case of need the documents are traced at once.
11. Dependent Work
Dependent work is a principle of internal check. The work of one employee is dependent upon others. One work passes in the hand of two or three persons till it is complete. Another person checks the passes done by one person. No person is all in all to start and complete the transactions.
12. Harmony
The principles of internal check are harmony among the employees and departments. The understanding is essential for business goals. The management is to achieve other social and national objectives. The harmony is basis for successful internal check.
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