What is an Internal Check?

An internal check is the splitting of work tasks so that one person is not responsible for every step in a transaction. It is an essential part of an organization’s system of internal controls, since it can be quite effective in reducing transactional errors, and may spot instances of fraud.

Advantages of an Internal Check

There are several advantages to using an internal check, which are as follows:

Reduced fraud. Internal checks make it harder for any single employee to manipulate or misappropriate resources, as multiple people are involved in the process. Dividing responsibilities, especially in financial transactions, minimizes opportunities for fraud.
Error reduction. An internal check reduces the number of transactional errors, since a second person can spot and correct them as part of her ongoing work. Spotting these errors up-front reduces the work required to later track down and correct errors.
Enhanced accountability. Each employee’s role and responsibilities are clearly defined in an internal check system, which increases accountability. Employees know their work will be reviewed, so they’re more likely to follow procedures accurately.
More reliable financial reports. Internal checks improve the reliability of financial statements by ensuring the accuracy and consistency of recorded transactions, which is essential for informed decision-making and for meeting regulatory requirements.

Disadvantages of an Internal Check

A problem with internal checks is that splitting tasks is less efficient. This is because there is a queue time involved whenever the transaction workflow shifts to a different person. Consequently, its use may be limited to high-value transactions where there is a greater risk of loss. If used on low-value transactions, it may significantly increase their cost.