Internal Control over Dividends The nature of internal control over the payment of dividends, as in the case of stock issuance, depends primarily upon whether the company performs the function of dividend payment itself or utilizes the services of an independent dividend-paying agent. If an independent dividend-paying agent is used, the corporation will provide the agent with a certified copy of the dividend declaration and a check for the full amount of the dividend. The bank or trust company serving as stock transfer is usually appointed to distribute the dividend, since it maintains the detailed records of shareholders. The agent issues dividend checks to the individual shareholders and sends the corporation a list of the payments made. The use of an independent fiscal agent is to be recommended from the stand-point of internal control, for it materially reduces the possibility of fraud or error arising in connection with the distribution of dividends. In a smail corporation that does not use the services of a dividend-paying agent, the responsibility for payment of dividends is usually lodged with the treasurer and the secretary. After declaration of a dividend by the board of directors, the secretary prepares a list of shareholders as of the date of record, the number of shares held by each, and the amount of the dividend each is to receive. The total of these individual amounts is proved by multiplying the dividend per share by the total number of outstanding shares. Dividend checks controlled by serial numbers are dawn payable to individual stockholders in the amount shown on the list described above. If the shareholders ledger is maintained on a computer master file, the dividend checks may be prepared by the computer directly from this record. The stockholder list and dividend checks are submitted to the treasurer for approval and signature. The checks should be reconciled by the treasurer with the total of shares outstanding and mailed without again coming under control of the officer who prepared them. Cash in the amount of the total dividend is then transferred from the general bank account to a separate dividend bank account. As the individual dividend checks are paid from this account and returned by the bank, they should be matched with the check stubs or marked paid in the dividend check register. A list of outstanding checks be prepared monthly from the open stubs or open items in the checks register. This list should agree in total with the balance remaining in the dividend bank account. Companies with numerous shareholders prepare dividend checks in machine-readable form, so that the computer may perform the reconciliation of outstanding checks.