PRINCIPLES OF INTERNAL CONTROL
Following are the important 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.
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 enp1oyees should follow their rules properly.
7. INSTRUCTIONS IN WRITING:
All the instruction 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 staff 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 both 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 labor.
18. SUBSIDIARY RECORD:
Subsidiary record is a Principle of internal control. The detail every accounts 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 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.
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 adjustment and purchase ledger adjustments accounts are prepared.
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