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Term 1 Topic 4Internal Control
Overview
Topic 4 Page 29 Internal control
1 Page 29 Definition and explanation of Internal control
2 Page 30 Internal control processes
1 Stock control
2 Control over debtors
3 Control over creditors
4 Control over fixed assets
5 Control over consumable goods
6 Control over cash
Overview – Internal control
1 Definition and explanation: What is internal control?
Internal means it is within itself, in other words, what can the management do within a
business. Control means to have full authority something. Internal control in the
business is what management can do to exercise authority over all activities within the
business so that maximum profit can be obtained.
It is not only the managers/owners responsibility to have control over the business, but
all employees have the responsibility. Everybody in a business must be involved in
putting successful control measures in place.
To apply control, the following processes must be followed:
Decide on short-term and long-term objectives.
Gather information about the strong points and the shortcomings of the
business.
Analyse the strong points and the shortcomings of the business.
Act against shortcomings.
Via Afrika Publishers » Accounting Grade 10 30
, Term 1 Topic 4
Internal Control
2 Basic internal control processes
In order to maintain these processes, control must be kept over the following:
2.1 Stock control
The place where goods are stored must be safe from natural disasters (rain,
wind, etc.).
The goods must be stored in such a way that the risk of burglary is minimised.
All stock must be insured.
Stock lists must be kept up-to-date.
Sufficient stock must be kept, not too much or not too little.
Documents must be completed for stock purchased.
Documents must be completed for all stock issued to the sales department.
Regular stocktaking must be done.
The sales department must stay in contact with the warehouse to ensure enough
stock is on the shelves.
The sales department must keep track of how much stock is returned by clients,
to ensure that the packaging used, is the best packaging. If necessary,
alternative packing material must be used.
It is important that orders placed by clients contain the correct stock and that it
is correctly packaged.
The purchasing department must look at the time of the year in order to keep the
correct amount of stock. The time of year will have an effect on stock kept. (The
Christmas season would need more stock than at other times of the year).
If stock is kept too long, a sale may prevent possible losses.
Separation of duties so that there is only one person involved with each activity.
The more people are involved, the easier it is to point fingers. This prevents theft
of stock by staff members, fraud and corruption.
Via Afrika Publishers » Accounting Grade 10 31
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