What procedure would you suggest for internal checking of purchases

What procedure would you suggest for internal checking of purchases, sales, materials and wages in a big business?

Ans.

Internal check as regards certain transaction-

(1) Purchases

(i) The department who is in the need of material shall fill in the requisition slip duly signed and shall send it o purchase department.

(ii) The purchase department shall make an enquiry about the term and conditions of purchases from different suppliers on the basis of tender and quotations.

(iii) The purchase department shall place the purchase order. Four copies of purchase, order are prepared. One is sent to the vendor, second to the store department, third to the accounting department and four one is kept by the purchase department with itself.

(iv) On receipt of goods, they are properly inspected and entries are made in the goods inward register.

(v) The purchase department shall check the invoice and send the same to the accounting department for payment.

(vi) For the goods returned to the supplier entries are made in the purchase return book and a debit note is issued to the supplier.

(2) Sales-(A) Cash Sale-Sales at the Counter

(1) The salesman authorized to sell the goods at the counter should be specifically named. A specific number should be allocated to every salesman.

(2) The salesman sells goods to the customer and prepares four copies of cash memo, three of them handed over to customer and one is retained by him.

(3) Goods are handed over to the customers by gatekeeper and one copy of cash memo is retained by the gatekeeper and the other one will remain with the customer.

(4) At the end of the day, salesman cashier, gatekeeper prepare the summaries of cash sales separately and then they reconciled it, if any difference.

(5) The amount received from the cash sales should be deposited daily in the bank.

(3) Cash sale Sales by Travelling Salesman/Agents

In some of the organization travelling salesman are appointed for direct sales promotion and collection,. In such a case, the internal check system shall be-

(1) The salesman should be authorized to issue money receipts.

(2) They should deposit the entire cash collection daily to the cashier or to the bank amount of the company.

(3) The salesman shall submit the daily report of sales and collection.

(4) If possible, the salesman should be transferred from one area to another to avoid the frauds.

(C) Cash Sales-Postal Sales

(1) There shall be a separate register to record the postal sales or VPP sales.

(2) Whenever the cash is received against a VPP sale, it should be entered in a separate register.

(3) Cash received should be deposited in the bank through pay in slips.

(4) Proper accounting and adjustment of advances to avoid disputes.

(3) Payment of Wages and Salaries- The internal check system for payment of wages and salaries is devised carefully in case of manufacturing companies because they employ a large number of workers and there is a great possibility of frauds. The internal check system is so planned.

(A) Proper Maintenance of Wage Records- The workers are paid wages either on the basis of time spent by them or number of pieces produced by them. So these should be proper time records of piece work records. The overtime records should also be kept in the organization.

(B) Preparation of Wages Sheets-

(i) The wages sheets shall be proposed by a separate official.

(ii) The wages sheets shall include all the essential particulars like name of employee, number allotted total time worked, rate, bonus overtime etc.

(iii) There should be proper checking of calculations made in the wage sheet. The permissible amount (like income tax, provident fund etc.) shall be deducted from gross wages to show the net wages payable to workers.

(iv) The wage-sheet shall be signed by the person who has prepared it, before making any payment.

(C) Actual Payment of Wages

(i) Separate person should be responsible for preparation of wage-sheet, approval of wage bills and the actual payment there of.

(ii) Every worker who is to receive the wages should be personally present and he has to prove his identity at that time.

(iii) If possible, wage should be disbursed in the presence of departmental foreman concerned.

(iv) Signature of the workers should be obtained wherever they receive the wages.

(v) There should be a separate list of casual workers, if employed, in the organization.

(vi) There should be proper arrangement for dealing with unclaimed wages.

(vii) If possible, a separate bank account should be operated for wage payments. It will help in maintaining track of such payments or disbursement.

(4) Internal Check as Regarding Materials- If the stores are not kept under proper control and a proper system of internal check is not adopted, chances of fraud arise, the chance of fraud and misappropriation would be more if both these functions are performed by the same person.

(A) Receipt of Stores- On receiving stores, the store department will prepare a ‘Goods Received Note’ in triplicate-one for the purchases department, second for the accountant and third for the stores department itself. All details about stores should be noted on the note. The stores should be properly checked after their receipt.

(B) Preservation of Stores- The stores should be properly preserved before they are issued. The following points may be noted-

(i) A separate place should be earmarked for each type of stores.

(ii) A system of proper numbering should be adopted for all stores and places where they are to be kept.

(iii) The use of bin cards should be made for preserving stores. Such bin cards should contain details about stores and have three columns for receipt, issue and balance of stores. Such bin cards may be kept hanging on the places where store are preserved.

(iv) The stores should frequently be counted and checked by a responsible official who should also compare the bin cards with the stores ledger.

(v) Difference, if any between the actual stock and the balance of stock as shown by the books should be adjusted or written off after getting the sanction of the appropriate authority.

(C) Issue of Stores- For issue of stores, an organized procedure may be like this-

(i) The issue of stores should be made only against the requisition slip received from a department whose head should sign it.

(ii) The requisition slips used by the departments should be of different colours.

(iii) Only a responsible clerk should have charge of issue of stores so that in case of fraud, he may be held liable.

(iv) The stores officer should be seated near the gate so that all issues can be made under his supervision and control.

(v) A system of permits should be in operation for those who go out of the stores department. The permits should be entered in the Gatebook.

(vi) Whenever stores are returned by some departments, a stores returned note should be prepared and the return should be recorded in the Gatebook.

(d) Recording-

(i) A separate accountant should maintain records of stores.

(ii) If the stores are of a small variety, ledgers may be maintained. But if there is a large variety of stores used in the business, stores record cards may be used.

(iii) The stores record cards may be of different size and colour.

(iv) The details in the stores record cards may be written up with the help of goods received notes requisition slips goods returned notes, etc.

(v) The bin cards should be checked and compared from time to time with stores record cards.