The Importance of the Maker-Checker Control Mechanism as an Internal Check
Jagrit Tenani
CA Jagrit Tenani has emerged as a seasoned professional in the domains of Risk-Based Audit, SoP Formulation and Implementation, Internal Audit, Statutory Audit, and Goods and Services Tax (GST).
His experience in the Corporate Audit Department of ITC Ltd. encompassed him with a keen awareness of the critical role that stringent internal controls play in ensuring organizational excellence and compliance.
The Maker-Checker process is an internal control mechanism designed to minimize errors, fraud, and unauthorized transactions by segregating duties among different roles. The segregation of duties caused by work division contributes to the precision and legality of commercial transactions. Maker-checker is an authorization workflow that assures that at least two persons participate in a transaction.
Importance of the Maker-Checker Concept?
The Maker-Checker concept is recognized as an effective method of authority segregation. For example, if there is no multi-level approval, the person who initiated the payment may approve it, decreasing the security level. There are numerous benefits to the workflow paradigm that explain its significance.
- Eliminating human error and ensuring quality:
In the maker-checker approach, one person works on the job while the other verifies it. Because two individuals are involved, the likelihood of human error decreases. As a result, task quality improves due to double verification.
- Increased transparency:
The reviewer oversees the task at each level, ensuring full awareness of the entire process. This makes the entire process more visible, allowing the reviewer to make better educated decisions.
- Improved efficiency:
The paradigm enables the reviewer to offer modifications and review the task on the tool from a single platform, saving time that would otherwise be spent relaying feedback through multiple systems.
- Enhanced Security:
The checker monitors all transactions that take place during the process, eliminating the potential of fraud or data breach by outside parties. The maker-checker idea improves the security of the business process.
Limitations of Maker-Checker:
- Time and Resource Constraints: Because the Maker-Checker process requires two individuals rather than one, it may take more time and resources to implement. This might be an issue in organizations with limited resources or short deadlines.
- Prejudice: Despite the goal of independence, there is always the possibility of prejudice, especially if the Maker and Checker are closely associated. This proximity may lead to oversight of errors or inconsistencies.
- Not a substitute for other quality controls: Maker-Checker should be viewed as a component of a full quality control system, not as a stand-alone solution. To handle more complicated difficulties, further quality control measures may be required, such as statistical process control (SPC) or root cause analysis.
Examples:
Domain | Maker | Checker |
Banking | Teller initiates a fund transfer | Branch Manager approves the transaction |
Finance | The accountant enters the invoice | CFO approves payment |
IT Systems | Developer pushes code | IT leads reviews and deploys
|
HR | HR staff inputs salary data | The payroll manager approves the disbursement |
Procurement | Buyer raises a purchase order | The procurement head approves |
Key Principles:
- Separation of Duties (SoD): No one person can commence and complete a key task.
- Dual Control: Having two sets of eyes reduces the possibility of error or manipulation.
- Auditability: All actions are documented and traceable for auditing reasons.
- Non-overridable (Ideally): Systems should be designed to prevent circumvention of the control mechanism.
Maker-Checker System for Secure Banking Transactions:
The Maker-Checker idea is an important method used in the banking industry to assure the accuracy, validity, and security of financial transactions. In this workflow, one person (Maker) begins a transaction, which is then validated and authorized by another (Checker) before being executed.
This two-step verification procedure serves as an important control mechanism for reducing mistakes, fraud, and unlawful transactions in banking operations.
Importance of Maker-Checker for Accuracy and Security:
- Error mitigation: By requiring two sets of eyes on a transaction, the Maker-Checker approach dramatically decreases the possibility of errors or omissions.
- Enhanced Security: Ensures that no single person has complete control over transactions, lowering the danger of fraud or illegal activity.
- Accountability and Compliance: Assigns distinct roles for transaction initiation and approval, which helps to establish an audit trail and ensure
- Risk management: It is a risk-mitigation mechanism that ensures correct transaction authorization and validation.
The Maker-Checker Control Mechanism, as an internal checker, can be seen in a bank’s fund transfer process.
A bank staffer initiates a significant fund transfer on behalf of a customer.
Stage | Role | Action | Control Purpose |
1 | Maker (Finance Executive) | Logs into the bank portal and creates the payment instruction, enters vendor bank details, amount, and reason for payment. | Ensures operational work is done by someone close to the transaction. |
2 | System Flag | Flags the transaction as pending approval, restricting it from being processed. | Ensures no payment is processed without authorization. |
3 | Checker (Finance Manager or CFO) | Logs into the bank portal, reviews the transaction details, and verifies supporting documents (invoice, PO, etc.). Approves the payment if valid. | Detects and prevents fraud or error by validating the maker’s actions. |
4 | Bank Processes Payment | After the checker’s approval, the bank executes the transaction. | Ensures dual control over funds. |
This mechanism is commonly utilized in:
- ERP systems (such as vendor payment approvals).
- Human resource processes (for example, payroll processing).
- Finance (e.g., invoice approval).
Conclusion:
The Maker-Checker technique is a straightforward but powerful method for raising job quality and lowering errors. While the Maker-Checker mechanism enhances accuracy, accountability, and compliance, it must be integrated into a broader quality assurance framework to address complex operational risks. Businesses can establish a more stable and dependable workplace by utilizing Maker-Checker’s advantages while resolving its drawbacks.
In a world shaped by both technological and human limitations, the Maker-Checker mechanism remains a resilient safeguard. Consider how crucial this double-checking procedure is as we navigate this evolving world.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
Disclaimer
The content published on this blog is for informational purposes only. The opinions expressed here are solely those of the respective authors and do not necessarily reflect the views of Fintrac Advisors. No warranties are made regarding this information’s completeness, reliability, or accuracy. Any action taken based on the information presented in this blog is strictly at the reader’s own risk, and we will not be liable for any losses or damages resulting from its use. It is recommended that professional expertise be sought for such matters. External links on this blog may direct users to third-party sites beyond our control. We do not take responsibility for their nature, content, or availability.
Sources:
Understanding Maker Checker Process. What are its Benefits?
Maker Checker Concept: The Central Principle of Authorization | by 1ViewBusiness.com | Medium
Maker-Checker System for Secure Banking Transactions | by Crafting-Code | Stackademic
