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Internal Controls

When you want to buy an accounting software

Many entrepreneurs’ are interested in using computerized data processing for their business activities and start in a small way.

Most popular way to start computerizing has been to start doing accounting work on computer. Then with the experience of three to five years integrate invoicing in it. Slowly they venture into compterising Pay roll activities. The pay roll activities are generally restricted only upto computing the wage sheet and calculating dues like Provident Fund and over time earned by the employees. It is observed in most of the cases that these businessmen act only on the experience of others. Very rarely the decision of adopting automisation is taken in consultation with the other seniors in the organisation. This is a very crude, non systematic way to switch over to office automisaiton. Hardly this process can be accepted as a serious “Policy Decision”.

It is always a good decision to start atomization slowly by starting it from one department at a time then integrating the entire organisation in a planned manner. Here are certain hints for selecting the stand alone “Off the Shelf” software for Accounting work.

  • It should be simple to install on your existing system configuration
    • Check the existing configuration of your system and see if it will not get slowed down after installing the Accounting Software.
    • Your other output devises like Printers etc should be amenable to the new software
  • It should be user friendly
    • Not only the operators but the Management personals who need only to view the reports should be able to learn the software
    • It should be easily understandable to the persons other than accounts departments Whether existing stationary like Delivery Notes, Invoices etc can be used.
  • Whether existing stationary like Delivery Notes, Invoices etc can be used.
    • The office staff is used to the existing Documents like Invoices, Debit notes, Delivery challans and therefore the new accounting software should be such that the same formats can be continued
  • Whether customization in the ready version of the software is possible? And what will be the cost of customization.
    • The ready software provide generalized solutions and it is necessary to customize various functions to suit your requirements. This must be made possible while installing the new software.
  • Data Safety, Confidentiality and Availability
    • Data stored and used in the accounting software should be safe and non accessible to the unauthorized persons. Similarly it must be safe, that is not vulnerable to corruption, retrievable and properly backed up.
    • No unauthorized access should be allowed to the data, it should be properly encrypted, non editable and It should be available to the users
    • Proper back up facilities should be provided by the software vendor
    • Data should not consume unduly large space in the Hard disk or server
  • Software should socialize with other software’s used. For example if separate software is used for Excise duty records, Accounting software should be able to share the data with the excise duty record software and vice versa
  • Audit trail of the transaction
    • Proper segregation of duties among the accounting staff should be enabled in the accounting software. For example, the person handling Purchases, should not be allowed to operate the Inventory module of the software etc. similarly there should be “Maker Checker” facility available to identify the person who made the data entry and his superior who approved the same
    • Any editing, deletion or addition to the voucher once entered, should be identifiable.
    • Proper separation of authorities like Master creation and voucher entry modules should be separate
  • Staff training
    • Vendor should provide adequate training to the staff to operate and maintain the software
  • Follow up and Support
    • Vendor should provide technical support all the time and also should provide the new releases and patches as quickly as possible, particularly with the changes in taxation laws and other accounting amendments as per the statutory requirements
  • Financial burden
    • What will be the initial cost, cost of modification in the existing hardware, cost of Upgradation etc should be considered with the economic considerations

Segregation of Duties

Segregation of duties involves splitting or dividing a function in smaller sub functions and assigning them to various employees.

Basic objectives of SoD can be many which may include.

1. Simplify the operations and
2. Thereby increase the efficiency of the employees.
3. Enable accountability
4. Monitor the compliances of procedures
5. Create internal control points and many, depending upon the scale of operations of the organization.

Generally any function can be divided in three parts namely

a. Recording, initializing or creating
b. Authorization, checking or approving the transaction
c. Custody of the assets, be it an item of inventory, cash or a Capital asset like Laptops given to the employees etc. While designing the plan for segregation of duties care should be taken that no one person is posted in a position so that he can control his own act.
Duties should be segregated in such a way that frauds and mischievous acts are prevented at the early stage. Good preventive controls can be established by charting the segregation of duties carefully.


For anyone to access the information resources or information system of any oragnisation it is necessary that he should have an Identification name. The visitors to the system should be known to it. Creating an user ID, is a very important task. User I’d is an electronic name of the user accessing the system, be it stand alone or in a network system. Therefore user name, popularly known as user I’d should be generated very carefully.

Lot of precautions need to be taken before allowing anyone to access the system. Following are some guidelines

1. Gather the information of the new user carefully, System administrator should take utmost precaution to gather vital information about the aspiring user.
2. Users may be an Employee, Customer, Member, Employee of the Outsourced Contractor or any other Guest.
3. Whenever possible verify the information provided by the aspiring user.
4. Process of creating the User Id should be carefully controlled.
5. Have a system to cross verify contact details of the user by asking him to activate the user id from the email submitted by him.
6. User Id should be unique and should be generated once in a life circle of the user. Changes to user Id should be discouraged.
7. Consider the Purpose for which the user has been allowed, for example whether he is a permanent user or a temporary user like Guest user, Non employee etc
8. Temporary User Id’s should be deactivated immediately
9. Periodic review of all active user Id’s should be taken and documented
10. User Id’s of terminated employees should be deactivated immediately

Cheque Drop Box facility by the bank

For collecting the cheques from customers, banks used to have a separate counter popularly known as “Clearing Counter” which was a “manned” counter where a customer was issued the acknowledgement on the counterfoil of a Pay In Slip However now a days banks have two more options namely

1. Cheque Depositing Machine
2. Drop Box

Whereas the former is an expensive method the second one is almost cost free.

No doubt this is a faster method whereby the customer is relieved from standing in a Q for depositing the cheques. But this option deprives the customer of his “acknowledgement”

This fact has given rise to many a problems including the auditors for verification of the transaction. Many account holders have experience that the staff at the branches insists that the cheques should be dropped in the boxes. Incidents of staff flatly refusing to accept the cheques at the counter are also not uncommon.

In a circular DBOD No LegBC 74/09.07.005 dated 10th April 2004issued to all Scheduled commercial Banks the Reserve Bank of India the committee on Procedures and Performance audit of Public Services, - Banking Operations- Deposit accounts and other facilities relating to Individuals, Non Business that Both Drop box and facility for acknowledgement of cheques on regular collection counter should be available to the customers and no branch should refuse to give acknowledgment if the customer tenders the cheque on the regular counter and “we agree with the recommendation and advise that it is important that there is no curtailment of the rights of the depositor to obtain the acknowledgement by going to the counter”

In this regard the Reserve Bank of India (RBI) has been observing this development right since the banks moved from the Manned counter to Drop boxes.

RBI . In the Master circular for Customer Services, dated 1st July 2011 the it stipulates that

“ Both the Drop Box and facility for acknowledgement of cheques at regular collection counter should be available to the customers and NO BRANCH SHOULD REFUSE GIVE ACKNOWLEDGEMENT if the customer tenders the instrument at the counter. Circular clearly says that the banks should ensure that the customers are not compelled to drop the cheques in the drop box.

Banks have also been “advised” to make absolutely foolproof arrangement accounting for number of cheques every time the drop box is opened and also to invariably display at the DROP BOX ITSELF a note that the customer can also tender the cheques at the counter and obtain the acknowledgement on the pay in slip. The Circular further says that this message should be displayed in English, Hindi as well as in the local language.

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