INTERNAL CONTROL CHECKLIST

A. Internal Controls- General

1. The company should have an organization chart.
2. The principal duties of the officer should conform to the by-laws.
3. The duties of the principal accounting officer should be segregated from those of the
treasurer.
4. The accounting employees and records at all locations should be under the supervision of
the principal accounting officials.
5. The company should have an accounting procedures manual.
6. Accounting reports should be prepared, checked or reviewed by departments and
individuals other than those responsible for the operation reported upon.
7. Journal entries should be approved by an appropriate official.
8. The company should utilize control measures like (a) standard cost, and (b) comparison of
budgeted with actual expenditures.
9. L i s t i n g o f Employees who are and specimen signatures of person authorized to
approve underlying documents must be kept and available at all times.
10. The company should have an internal audit staff reporting to a senior official.
11. The internal audit program should be appropriate for the desired objective.
12. The internal audit reports should contain conclusions, exception, recommendations.
13. Internal audit reports should be reviewed by appropriate official and corrective action
initiated.
14. Employees performing accounting and treasury functions should be rotated on their jobs
and required to take vacations and their duties performed by others.
15. Employees in position of trust should be adequately bonded.
16. There should be an assurance that officers and employees are not concerned with the other
business with whom the company deals.

B. Internal Controls Cash- General

1. Employees handling cash should not journalize and post in the general ledgers, subsidiary
ledgers and other accounting records.
2. Bank accounts and check signors should be authorized by the board of directors.
3. Bank should be notified immediately when authority to assign checks of an officer ceases.
4. All bank accounts should be in the company’s name and properly controlled and recorded in
the books of accounts.
5. Transfer from one bank to another bank should be properly controlled and recorded in the
books.

C. Internal Control – Checks

1. Blank checks should be physically controlled.
2. Signing of blank checks should be prohibited.
3. Checks should not be made payable to cash or bearer.
4. Checks should be pre-numbered and numerical sequence should be accounted for.
5. Spoiled check should be mutilated and preserve.
6. If a check-signing machine is in use (a) the signature plates should be kept by the
check signor, and (b) the check signor should see to it that checks are properly
accounted for.

D. Internal Controls- Deposits

1. Duplicate deposit slips should be prepared, receipted by bank and retained on file.
2. Duplicate deposit slips should be compared with cash receipts by an employee other than
the cashier.

E. Internal Controls- Bank Reconciliation

1. Bank accounts should be reconciled regularly by an employee not handling cash receipts
and disbursement function.
2. Bank statements, paid checks, bank debit and credit memos should be delivered direct to
the employee reconciling bank accounts.
3. Bank reconciliations procedures should include:
a. Comparison of checks with cash disbursement
records. b. Examination of endorsements and,
c. Comparison with ledger balances.
4. An officer not responsible for cash receipts and disbursements should review bank
reconciliations and question unusual reconciling items.
5. Deposit and collection items subsequently charged back by the bank should go direct to
someone other than the cashier.
6. Cash receipts and disbursements should be recorded as soon as received or disbursed.
F. Internal Controls – Cash on Hand
1. Petty cash funds should be maintained on imprest basis.
2. Primary responsibility for each fund should be vested in only one person.
3. The petty cash custodian should be independent of the cashier and of other employees who
handle remittances from customers and other cash receipts.
4. The accounting records should not be accessible to the petty cash custodian.
5. For all disbursements from the fund there should be a corresponding voucher.
6. Petty cash vouchers should be written in ink.
7. Amount in petty cash vouchers should be in figures and words.
8. Petty cash vouchers should be approved by department heads or some equivalent
employee.
9. Reimbursement voucher and supporting petty cash vouchers and papers should be cancelled
“PAID” immediately after the signing of reimbursement check.
10. Reimbursement vouchers should be in the name of custodian.
11. There should be surprise count of the fund by the internal auditor and other independent
person.
12. The petty cash fund should be limited to the requirements for two weeks or less and for
petty amounts not exceeding a certain fixed amount.
13. Papers supporting reimbursement should be audited.

G. Internal Controls- Cash Records

1. The mail should be opened by someone other than the cashier or accounts receivable
bookkeeper.
2. A list of mail receipts should be prepared by the employee opening the mail and given to an
employee other than the cashier for verification of amount recorded and deposited.
3. Cash collections should be deposited intact not later than following day.
4. Someone other than the cashier and bookkeeper should make deposit with bank.
5. Authenticated duplicate deposit slips should be compared with official receipts and cashier.
6. Bank deposits and credit memos should be delivered to an employee other than the cashier.
7. Negotiable assets other than currency, checks, and drafts should be in the custody of an
employee other than the cashier.
8. The cashier should be responsible for cash receipt until they are deposited with the bank.
9. All bank accounts should be authorized by the board of directors.
10. Deposit by branches should be subject to the withdrawal only by the home office.
11. The cashier should not have access to customers’ ledgers and monthly statement of
accounts.

H. Internal Controls- Cash Disbursements

1. Checks and vouchers should be pre-numbered and the sequence of check number
accounted for by the person reconciling bank balances.
2. Voided checks should be kept in file.
3. A check-writing machine should be used.
4. Check signors should not have access to accounting records, cash receipts and petty
cash funds.
5. Signing of blank checks and checks payable to cash or bearer should be prohibited.
6. Transfer from one bank to another should be under accounting control.
7. Bank reconciliation should be prepared by someone who has nothing to do with cash and
check handling and record keeping.
8. The employee reconciling bank accounts should obtain bank statements, bank paid checks
and bank debit and credit memos direct from the bank.
9. The employees reconciling bank accounts should examine bank paid checks as to
date, payee, amount, signatures, endorsements and cancellation.
10. Supporting data should accompany checks when submitted for signature.
 11. When mechanical check signing is used, the signature plates should be
adequately controlled.
12. Cash vouchers and supporting papers should be cancelled “PAID” immediately after signing
the checks to prevent reuse to support another disbursement check.

J. Internal Control- Accounts Receivable

1. Accounts should be confirmed periodically with customers by client’s personnel.
2. There should be periodic aging of receivables.
3. Disputed items should be handled by other than the cashier and bookkeeper.
4. Write-offs and adjustments should be approved by an officer.
5. Credit memoranda should be numerically controlled and approved by an officer.
6. Payments for customers credit balances should be approved by an officer.
7. Monthly statement of accounts should be sent to customers.
8. Monthly statement of accounts should be checked against accounting records and mailed by
other than the cashier and bookkeeper.
9. List of customers’ accounts should be reconciled periodically with general ledger control
accounts.
10. Delinquent accounts should be reviewed periodically by an officer.
11. There should be rotations of accounts receivable bookkeepers.
12. The credit department should be independent of the sales department and cash
department.
13. Written off accounts receivable should be under the custody of responsible employee other
than the cashier and attempts should be made to collect from the customers.

I. Internal Controls –Inventories

1. Perpetual inventory system should be in use.
2. Purchases should be delivered direct to central storage or receiving department.
3. The physical goods should be under the custody of the storekeeper who should be other
than the one handling perpetual stock cards.
4. There should be physical count of inventories at least once a year as a check on the
physical goods and perpetual records.
5. There should be a written approval by the responsible employee for adjustments of
perpetual records to physical count.
6. The inventory system should provide for reporting of slow-moving, obsolete and overstocked
items.
7. There should be proper controls over consignment-in, consignment-our materials held by
processors, materials held by client for processing and customers merchandise.
8. The client should prepare written instructions for physical count.
9. Accumulation and sale of scrap should be under control.

K. Inventory Controls – Investment Securities and Plant, Property and Equipment

1. Securities should be kept under lock and key or in safe deposit vault.
2. More than one person should be present in opening the safe deposit box.
3. There should be a comparison of actual and authorized expenditures.
4. The disposal and retirement of plant and equipment should be authorized by responsible
officer and property accounted for.
5. There should be physical count of plant and equipment at least once a year and an
appraisal for adequacy of insurance coverage.
6. The company should have a policy on expenditures to the capitalized and on
expenditures to be charged as expenses.
7. There should be a satisfactory system for safeguarding small tools.
L. Internal Controls – Payables
1. Borrowings should be authorized by the Board of Directors and sources of funds and officers
authorized to negotiate should be specifically mentioned in the minutes of the meeting.
2. Subsidiary ledgers for accounts payable should be maintained and regularly reconciled with
general ledger control.
3. There should be comparison of supplier’s monthly statement and client’s subsidiary ledgers.
4. Debit balances in creditor’s accounts should be handled by the credit department.

M. Internal Controls – Owner’s Equity

1. If the client does not employ an independent transfer agent, the unissued certificates and
stubs should be under the custody of an officer. Surrendered certificates should be
effectively canceled. Documentary stamps, should be properly attached and cancelled for
stock issuances.
2. If client does not employ an independent dividend paying agent, proper control should be
exercised in preparing, mailing and accounting dividend checks.

N. Internal Control- Sales

1. Customer’s orders should be reviewed and approved by sales or order department and
credit department.
2. Delivery receipts should be pre-numbered.
3. Invoices should be checked as to quantities, prices, extensions and terms.
4. Invoices should be compared with customer’s orders.
5. Returned items be cleared through receiving department
6. Invoices should be summarized and classified by other person than the accounting
department to provide check on recorded sales.
7. Sales to employees, COD sales, cash sales and sales of scrap should be controlled in
the same manner as credit sales to customers.
8. Units sold should be correlated with purchases and inventories.

O. Internal Controls – Payroll

1. Preparation of payroll should be distributed to a number of employees and the latter
rotated on their jobs.
2. Time records should be punched in time clocks.
3. Changes in rates, additions, and dismissals should be properly authorized.
4. Time tickets should be checked and compared with production schedules and
payroll distributions.
5. Employees should acknowledge receipt of salaries.
6. The paymaster’s function should be independent of the payroll department.
7. Unclaimed wages should be deposited in the client’s bank account immediately after pay
day and corresponding liability set up.

P. Internal Controls – Purchases and Expenses

1. The purchasing department should be independent of accounting, receiving and
shipping functions.
2. All Purchases should be made on purchase orders.
3. A copy of the receiving report should go directly to the accounting department.
4. Purchase orders and receiving reports should be pre-numbered.
5. The accounting department should check purchase invoices against purchase
orders, receiving reports and inspection reports.
6. Purchase invoices should be checked as to pricing, extension, footing and freight charges.
7. Vouchers should be prepared for all purchases and expenses.
8. Vouchers for purchases and expenses should be examined be responsible
officer or employee to ascertain completeness of supporting papers and
approvals.
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