Difference between Internal check and Internal audit

The internal check, better known as internal control, is a system of checks and verifications that an organization institutes within its daily operations to ensure that the transactions and activities are conducted in a controlled and efficient manner.

Its main purpose is to prevent errors and irregularities, protect the assets of the firm, ensure the accuracy and reliability of financial and operational information, and encourage compliance with specified policies and procedures.

Internal check is an integral part of the organization's overall control environment and is usually implemented at different stages of business processes to minimize the risk of fraud, mismanagement, and operational inefficiency.

Table Of Content

Objectives of Internal Check

The Verification of Accuracy: The internal checks are designed to verify that all financial and operation records are accurate, such that the transactions are accurately recorded and calculations are correct.
Preventing Errors and Irregularities: Internal controls can be instrumental in helping an organization identify errors, variances, and deficiencies early in the process, which results in significantly minimizing the risk of vast future issues.
Safeguarding Assets: Internal audit procedures help protect organizational assets through policies and procedures that ensure accountability for organizational resources and their use for legitimate purposes.
Compliance to Policies and Procedures: Internal audits establish whether employees are abiding by established policies, procedures, and guidelines that ensure activities are conducted per corporate standards.
Efficient Use of Resources: Internal controls help to ensure proper usage of resources by highlighting inefficiencies or wasteful practices that will lead to cost-cutting measures and higher levels of productivity.
Fraud Prevention and Detection: Internal controls deter fraudulent activity and may help detect such behaviour in a timely manner to minimize financial and reputational risks from fraud.

Internal Audit

Definition

Internal audit is an independent, objective, and systematic evaluation of internal controls, processes, systems, and activities within an organization is conducted by an internal audit department or teams.

Internal audit's main purpose is to provide assurance to management and the board that the operations of an entity are sound, efficient, effective, and in compliance with relevant laws, regulations, and internal policies.

Objectives of Internal Audit

Internal Control Evaluations: Internal audit reviews the effectiveness of internal controls within the organization for safeguarding assets, fraud prevention and detection, and assuring accurate financial reporting.

Risk Assessment and Management: The internal auditors identify the risks facing the organization and assess them to assist the management to understand and manage them effectively.

Compliance Monitoring: The organization can avoid non-compliance and possible legal or financial sanctions through internal audits, thus adhering to applicable laws, regulations, and policies.

Efficiency and Effectiveness: The internal audit assesses efficiency and effectiveness of operations and processes, and identifies areas where improvements should be undertaken to achieve better performance and the accomplishment of organizational objectives.

Financial Reporting: Internal audit supports the organization's commitment to the production of reliable financial statements by ensuring that the financial information is accurate and reliable.

Safeguarding Assets: Internal auditors verify whether organizational assets are safeguarded against loss, theft, or misuse.

How are Internal Checks and Internal Audits different?

The key differences between internal check and Internal audit are based on the below-mentioned factors:

Nature
Scope
Independence
Purpose
Reporting
Timings and Frequency

Nature

Internal Check:It involves the audits and controls that take place regularly as part of the daily activities performed by the organization. The main objective is to ensure that no single individual fully owns a particular transaction or process in its entirety.

Internal Audit: Internal audit is an independent and systematic review of the internal controls, financial records, and operational processes within an organization. Internal audit is carried out by a separate department or team called the internal audit function. Its only objective is to evaluate the sufficiency of internal controls, find faults and deficiencies, if any, and report them with recommendations for improvement.

Scope

Internal Check: The internal check deals with the day-to-day checks and verifications performed by different personnel of the organization as a part of the routine performance of their duties.

These checks are meant to help in ensuring that transactions and activities are conducted according to established policies and procedures. The primary objective of internal

Checks are basically performed to detect and prevent errors and irregularities in the usual course of business.

Internal Audit: Internal audit is a formal and organized process conducted by an internal audit department or an auditing firm.

The main goal of an internal audit is to give confidence to its management and stakeholders on the effectiveness of the system of internal controls, the processes of risk management, and the compliance of laws and regulations.

It also provides recommendations for process improvements and risk mitigations.

Independence

Internal Check:It is not independent, as it depends on the employees within the organization to perform the checks. It is based on the principle of division of labour and dual control.

Internal Audit:In contrast, internal audit is an activity independent of the processes that are assessed. The internal audit function reports directly to the board or the audit committee and operates with objectivity and impartiality.

Purpose

Internal Checks: Internal controls or internal control measures are mainly instituted to protect the organizational assets; ensure the accuracy and reliability of the financial and operation information; facilitate operational efficiencies; and motivate adherences of organizational policies and procedures. The major purposes of internal checks include - prevention of fraud, efficient operations amongst others.

Internal Audits: Internal audits performed by a dedicated and organizationally independent internal audit function go beyond assurance on controls, focusing on the effectiveness of an entity's internal control, governance processes, and risk management. The main objectives of performing internal audits include:-

Reporting

Internal Check:Usually, the results of internal checks are reported to the immediate supervisors or other relevant departments within the organization.

Corrective actions are the responsibility of the management of the concerned departments.

Internal Audit: The reports of internal audit are more formal and comprehensive.

They are presented to the senior management, audit committee, and board of directors to provide an independent and unbiased judgment regarding the organization's controls and operations.

Timings and Frequency

Internal Check: Internal checks are continuous processes that occur within the ordinary course of the operation. They are integrated into routine activities of the organization and are not performed at periodic intervals.

Internal Audit: Most internal audits follow a pre-set audit plan that is regularly carried out. The internal audit frequency may change depending on the risk profile of an organization, its size, and regulatory requirements.

Similarities between Internal Check and Internal Audits

Internal check and internal audit share a number of similarities, since they are both important for the effectiveness of the internal control, risk management, and governance processes of an organization.

Both Internal checks and Internal audit serve the purpose of enhancing the overall control environment of the organization. They both prevent errors, irregularities, and fraud, while also promoting compliance with laws, regulations, and internal policies.
Both processes are designed for the identification and assessment of every type of risk which is to be faced by the organization. These practices are used to mitigate these risks.
Both Internal Check and Internal Audit look for areas of improvement and operational efficiency by providing helpful insights and recommendations that help improve organizational performance.
Also, both processes are related to the review and examination of the company's financial transactions, processes, and operations to check for deviations from established policies and procedures.

Conclusion

However, they differ in scope, independence, and execution, even as both internal audit and internal check contribute to an organization's internal control framework.

Internal check is an ongoing process of internal control and verification fixed within day-to-day operations, whereas on the other hand, internal audit is a formally and periodically conducted assessment to provide assurance, recommendation and evaluation of company's internal controls and policies adapted to minimize risk.

Why Professional Utilities?

Professional Utilities simplify registrations, licenses, and compliances for your business. With experienced guidance and nationwide support, we help you complete every requirement efficiently and effectively.