An internal check is a part of internal control. It is concerned with staff duties so that a single person is not allowed to record every aspect of a transaction. This technique is related to the division of work among the people maintaining the accounts.
Disadvantages of Internal Check System
Internal check system is useful to every stakeholder of the business even though it has some disadvantages which are as follows:
- Under the internal check system, every staff wants to complete her/his work in time. So, s/he performs work in a hurry which leads to errors.
- It is not suitable for small firms. It requires more effort, more time and more staffs. So, it is unsuitable for small business organizations having fewer transactions and resources.
- Under this system, once work is checked by another staff, the latter detects errors and frauds. So, there are chances of conflict between or among the staffs.
- If this system is not properly organized, there are chances of disorder in the working of the business. An Auditor cannot be relied on if he does not conduct tests with procedures of his own.
- It may create confusion among the staffs which may lead to conflict. Staffs may form a group for personal benefits which leads to delay in work and increases errors and frauds.
- It is more expensive and time-consuming. Small organizations cannot use internal check system because it needs more staffs which increases the cost. So, it is not suitable for small concern as it may be uneconomical for them.
- As the same work is done by the employee’s day-after-day the job becomes boring and the employees lose their creativity. It creates disorder and confusion hence, chances of errors and frauds increases.
- It may Be Decreased in Quality of Work. Auditor completely depends on internal check while conducting the final audit. The auditor may show slackness in the work. It may decrease the quality of his work.
The owners and investors can suffer due to low rate of income on their investments. The demerit of internal check is wastage of resource for a small business.