INTERNAL CHECK 1. Internal check.—One of the purposes of an ac counting system is to insure and encourage honesty upon the part of every employe. This can be done best by minimizing the opportunities for dishonesty, and by placing such a check upon the work of every man as to make it practically certain that any dishon esty will be detected immediately.
The very fact that detailed accounts are regularly kept tends strongly to deter the employe who other wise would be tempted to misappropriate his em ployer's funds and goods. Yet embezzlements and thefts frequently occur even when seemingly good ac counting systems are in constant operation. Evi dently something more than the mere keeping of ac counts is needed. The accounting system and the entire business organization must be of such a kind as to render misappropriation well-nigh impossible.
2. Accounting control; check on stationery.—This accounting control takes several forms. One is that which has to do with the printing of the forms that are used. For instance, the passenger tickets issued to each ticket agent of a railroad com pany are numbered consecutively in series, one series for each station to which the agent may sell tickets and for each class of passenger service. These are charged to the agent by series and numbers, and he must account in his reports, by means of the tickets that the train conductors send in to the accounting offices, for every ticket that is issued to him. In other words, he must be able to show either tickets or money.
3. Accounting control; joint responsibility.—An other method of establishing accounting control is by so dividing the duties of the business organization that a fraud could not be committed and successfully concealed unless there were collusion among sev eral persons. If this system is not adopted the same person may sell goods, receive the money, and make the record in the accounts. Under such cir cumstances it would be easy for him to make a sale, make no record of it, and put the money in his pocket.
If a system can be established whereby one person makes the sale and is compelled by the customer to record it correctly, a second takes the money, and a third records the cash received by this second person, collusion among at least three persons would be neces sary if a fraud were to be concealed. The department
store method is to provide a receipt, a delivery ticket, an office copy and a cashier's coupon. The first three must be made out simultaneously by the sales man; they must then be transmitted to the depart mental petty cashier, who must stamp and return them. One is given to the customer, one is deposited in a locked box for the use of the accounting depart ment, and one goes to the shipping room with the goods. The cashier's coupon enables the petty cashier to check her own record.
Again, in connection with credit sales, if the same person ships the goods, keeps the sales book, receives the money and makes the cash record, he may refrain from recording a sales invoice, and when the custom er's check arrives, fail to enter it among the cash receipts, forge the indorsement on the check, cash it and appropriate the proceeds.
If the various functions are so separated that one person makes the shipping record, another fills out the invoice, a third records the invoice, a fourth re ceives the check and records it, and a fifth goes each day to the bank and deposits all such receipts bring ing back an initialed deposit ticket on which each check is shown separately, the opportunity to hold out checks without discovery is very greatly diminished. To require a daily deposit of all cash receipts, and a comparison from time to time of the daily cash book entries with the initialed duplicate deposit tickets, or better still, with the originals obtained from the bank, is an effective preventive of the holding out of payments.
4. Example of a check that did not check.—In a case which came recently to the writer's notice, a music conservatory which had an affiliation with a certain college, gave music lessons to many of the college students. The conservatory officials made the charge-slips out in triplicate, kept one, and gave two to the student, one of which was to be presented by him at the college registrar's office, as evidence of the amount of money he was to pay. Many of the stu dents failed to present this slip, and did not pay their music tuition. The copies of the charge-slips should have been sent directly to the college officers instead of being intrusted to the students.