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Checking Financial Transactions

CHECKING FINANCIAL TRANSACTIONS

Contents:

Scope

Key Points

Background

Monitoring

Review

Selective Checking

Computer Checking

Scope

1. This section gives guidance on the checking of financial transactions. The guidance is aimed at all organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable, including the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service, SG Executive Agencies, non-ministerial departments and bodies sponsored by the SG.

Key Points

2. Responsibility for the propriety, regularity and accuracy of financial transactions cannot be avoided by relying on the work of internal or external auditors. Public sector organisations are therefore required to carry out appropriate checks at operational area level.

3. In order to ensure that the checking procedures are both effective and economical they must be monitored.

4. Public sector organisations should review their checking procedures by operational area on a regular basis.

Background

5. Responsibility for the propriety, regularity and accuracy of financial transactions cannot be avoided by relying on the work of internal or external auditors. Public sector organisations are therefore required to carry out appropriate checks at operational area level. "Checking" includes checking the arithmetical accuracy of invoices raised / received, claims or other vouchers, fulfilment of the terms of a contract, professional verification for validity, physical checking of goods invoiced, checking of invoices against orders, application of VAT etc. Checking should be undertaken by persons with no direct involvement in entering into commitments for related goods and services.

Monitoring

6. In order to ensure that the checking procedures are both effective and economical they must be monitored. Records should be kept of the number, nature and financial amounts of errors detected and of the staff costs involved in undertaking the checking. At operational area level records should be analysed regularly in order to identify the underlying reasons for errors (e.g. need for improvements in form design, training etc) and to take remedial action as necessary. In addition internal audit should report on cases of excessive or ineffective financial checking. Where appropriate checking procedures should be adjusted in light of findings.

Review

7. Public sector organisations should review their checking procedures by operational area on a regular basis. Such reviews should consider the extent of and the need for checks carried out in a particular system by following each process stage by stage. Analysis of the results may suggest underlying inadequacies in the procedures or supporting systems which need to be addressed separately.

Selective Checking

8. If it is established by the monitoring of procedures that the administrative costs of general (i.e. non-selective) checking are not commensurate with the results achieved then organisations should consider the appropriateness of selective checking.

9. All items should be scrutinised for validity and completeness, but more detailed examination, for example of arithmetical accuracy or terms of contract, may be limited to a selective check taking account of the following factors:

  • the financial incentive for a person or body to provide incorrect or incomplete information;
  • the size of the transaction and the effect of likely errors on public funds, together with the value of administrative savings likely to be achieved by selective checking;
  • the degree of assurance that can be provided by checks at an aggregated level;and
  • the errors that any system of checking is likely to disclose.

10. One of the following forms of selective checking may be adopted as appropriate:

  • random sample checking - this is used in conjunction with random number tables or by computer generated random numbers where large numbers of transactions are involved and where it is desired to establish statistically the overall degree of accuracy within confidence limits.
  • systematic sample checking - this involves checking every "nth" of a series of transactions (e.g. every tenth or twentieth claim). Sampling of this nature must be from a random starting point.
  • stratified sample checking - this can be employed along with either of the foregoing methods and can involve checking a higher percentage of higher value transactions and a lower percentage of lower value transactions. By this means it can be possible to check a large proportion of the value processed by means of a relatively lower selective percentage check.

11. The detail of errors revealed under selective checking procedures should be recorded and monitored in the same way as those under general checking procedures. This will enable checking levels to be adjusted as necessary. The reasons for significant changes in the level of error found should be investigated.

Computer Checking

12. Where transactions are handled by a local computer system many essential checks can be provided for in the program. Error reports will then be printed out by the computer and it is important that these reports are acted upon with due care. It is also important to ensure that computer checks are not being duplicated clerically.

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Page Published / Updated: December 2008