Internal Control Unit 2 Part 2.pptx
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The document discusses internal controls for wages payment and cash transactions. It outlines procedures to prevent fraud related to wages such as including dummy workers or manipulating time records. It recommends maintaining records of employee time, piecework, and overtime. For cash, it recommends separating duties for receipts, payments, and reconciliations. Key controls include issuing pre-numbered receipts, depositing cash daily, restricting access to cash and records, and requiring dual authorization of payments.
Internal Control Unit 2 Part 2.pptx
- 1. Internal Control Part II 1. Wages payment, cash sales, cash purchase,
- 2. Internal check as regards wages
- 3. • The system of internal check for wages especially in manufacturing concerns, employing large number of workers, possibilities of frauds are always there. • The Objectives are as follows: • a) To avoid inclusions of dummy workers in the list of workers. • b) To avoid incorrect time or piece work records. • c) To avoid fraudulent manipulation of wage-sheet and misappropriation of money etc. • d) To minimize such frauds, the following system of internal check for wages is suggested. Internal check as regards wages
- 5. I. Maintenance of Wages Records
- 6. I. Maintenance of Time Records 1. Time Records: It is a record maintained by the gate keeper who records the entry time and exit time of each worker. Shift supervisor also maintain records for time spent by an employee. When wages are paid on the basis of time spent by a worker, the record maintained by the gate keeper and record maintained by foremen (shift supervisor) of each department are summarised for payment of wages.
- 7. Piece work (or piecework) is any type of employment in which a worker is paid a fixed piece rate for each unit produced or action performed, regardless of time. • This record is maintained by the foremen who records the actual work done by each employee. • Each person is provided a job card who records the work done by him. Finally, the record maintained by the foremen and job card are used in determining wages. Piece-work Records:
- 8. Overtime Records: Overtime should be sanctioned in advance by a responsible person. Employees should be issued overtime slips bearing the name and number of worker. Such slips should be issued and initiated by some responsible official. At the end of the week such slips should be sent to the wage office.
- 9. Pass-out Records: The workers should not be allowed to leave the factory without the written permission. For this, a pass-out slip is issued to the worker by same authority. Such slips are handed over to the gate keeper. The wage office should also be given copy of it.
- 11. • The wage sheet should not be prepared by one clerk alone. • A set of clerks should compare the records maintained at the gate and the wage office and enquire about differences, if any. The following points should be taken into account.
- 12. For time workers, the gate-keepers records and departmental time records should be compared by two clerks in the wage office. Net amount payable to each worker should be calculated by another clerk. Similarly, wage sheets should be prepared for the piece workers following the above procedure. All the wage sheets should be counter signed by the Works Manager, a Director or a Partner.
- 14. 1. The person who is in-charge for payment of wages should not have connection with the preparation of wages sheet. 2. Each worker should be asked to receive his wages personally in the presence of his foreman to identify him. 3. No payment is made to someone on behalf of a worker who is absent. 4. Wage payment should be made by cash department, not by other persons. 5. The amount of wages for each employee should be placed in an envelope bearing the name and number of person. 6. Special arrangements should be made for payment to the absentees. 7. Exact amount of money should be drawn from the bank for payment of wages. 8. Advances to workers should be discouraged and if it becomes unavoidable, they should be given through the petty cashier. 9. If casual workers are also employed in the factory a separate record should be maintained about them. 10.Undisbursed wages should be deposited immediately into the bank.
- 16. Internal check as regard to cash
- 17. • The risk of misappropriation of cash needs no emphasis. • There should be a proper system of internal check in respect of all transactions because majority of the frauds arise in connection with cash. • Duties in respect of cash, should be divided in such a manner that there is automatic check on the various functionaries connected with cash section. • It is necessary that employees of the cash are encouraged to go on vacation. Internal check as regard to cash
- 18. Cash receipts can be misappropriate in the following manner: • Cash receipts may not be entered in the cash book. • Cash received may be understated by preparing duplicate receipts for amount less than what is actually received • Cash sales may be treated as credit sales. Internal Check-Cash Receipts 1. The cashier should not have access to the incoming mail books (which do not concern him), petty cash funds and the ledgers. 2. Remittances should be opened by the cashier in the presence of a responsible person. All cheques and bank drafts received should be marked - `Not negotiable A/c Payee only.'
- 21. 3. All the receipts of the day should be deposited in the bank at the end of the day or the next morning. - The main difference is that invoices are issued before a business has received payment from a customer, and a receipt is issued after payment has been collected. 4. On receiving cash, it should be acknowledged by issuing a printed receipt. This receipt should have a counterfoil. These receipts should be consecutively numbered. The receipt should be kept under lock and key. A counterfoil is the part of a cheque, ticket, or other document that you keep when you give the other part to someone else.- When you deposit money you fill a pay in slip and certain portion of the slip is torn and signed by the cashier
- 23. 5.Cash registers, are machines used to process sales transactions and record the sales. Cash registers should be used
- 24. 6. On receipt of cash or cheque, it should be immediately entered in cash book or cheque received notebook.
- 25. 7. All remittances (draft, cheque) must be crossed as ‘account payee only’ 8. Cash and cheques received should be deposited immediately. 9. Bank pay-in-slips should be prepared by a separate person, who is not entrusted with the work of depositing cash in the bank. 10.Cash received after the banking hours should be kept in the locker of the business. The locker should be opened by the cashier in the presence of a responsible official. 11. Cash balance should be physically verified by a responsible official by surprise check at frequent intervals. A pay-in-slip is a bank deposit slip that is used to deposit money into a bank account. When a person needs to deposit checks or cash into his bank account, he normally fills out a slip that includes the account number, the date, and the deposit details.
- 26. Internal Check-Cash Payments There should be an effective system of internal check with regard to all payments made by the concern in the form of cash or cheque or bank transfers. Cash payments can be misappropriated in the following ways: · Payments may be made against fictitious vouchers. · Payments may be made against inflated vouchers. · Payments may be made without receipt of goods. · Revenue expenses maybe treated as capital expenditure. Hence, a proper system of internal check is necessary. The following system of internal check should be adopted as regards cash payments. Internal check as regards cash payments
- 27. 1. The person in charge of making cash payments should not have any connection with the person responsible for receiving cash. 2. The person responsible for making cash payments should not have access to the books of accounts. 3. As far as possible, all payments should be made by cheques authorised by a responsible person and signed by responsible persons. Cheques should be marked' A/c Payee only' before they are despatched. Unused cheque books should be kept under lock and key by a responsible person. 4. After making payment against a particular bill or invoice, the voucher and the supporting bill or invoices should be stamped as ‘paid’ so that the same voucher is not again passed for payment.
- 28. 5. Vouchers should be numbered properly and filed in order. Unused and cancelled vouchers and cheque books should be kept under the custody of a responsible person. 6. Person who is responsible for preparing the cheque should be clearly specified. Before passing a bill for payment, it should be ensured that the goods have been received. 7.The bill for which payment is to be made should be sanctioned by the responsible official. 8. Confirmation balances from the creditors should be made through direct correspondence. 9. Bank reconciliation statement should be prepared to reconcile cash and bank balances from time to time.