What is internal check Explain with example?

Answer 1

Internal check is an important process of internal control system. Under the system of internal check, it is ensure that the job performed by one employee gets checked, automatically by another employee. No employee, alone, allowed handling transactions from beginning to end.

Example:

Please recall what happens when you visited a bank branch to encash a cheque. First, you produce the cheque to a counter, where the

official concerned issued you a token and enters the token numbers on the back of the cheque and in the token book. The cheque is then send to the ledger clerk, who verify the balance in your account and makes debit entry therein. The cheque then sent to an officer, who verify your signature on the cheque with bank records, and if it tallies then he sends the cheque to the cashier to make payment. The cashier makes the payment against the token handed over to you and records it in his cash register.

This is an excellent example of internal check. Here arrangement is such that the job of one employee is automatically checked by other.

From the above discussion, we can summarize some characteristics of internal check:

1. Proper segregation of duties

2. Automatic checking of job

3. Multiple recording of same transactions

4. Rotation of jobs

5. Prevention of errors and frauds

6. Separation of custodial and recording functions.

Let us understand the concept of internal check with a practical example of a medium sized manufacturing company regarding its purchases.

All incoming credit notes should be numbered and stamped the same way as invoices. These should also check with the advice note covering the return of rejected goods to the supplier.