Individual Assignments from the Text Resource: Modern Auditing Prepare written answers to the following assignments: Chi. 16: Comprehensive Question Control Activities in Payroll Processing Chi. 16: Comprehensive Question Potential Misstatements/Tests of Controls – Payroll * * 16-33 (Control activities in payroll processing) As part of the audit of Manor Company, you are assigned to review and test the payroll transactions of the Galena plant. Your tests show that all numerical items were accurate.
The proper hourly rates were used, and the wages and deductions were calculated correctly.
The payroll register was properly footed, totaled, and posted. * Various plant personnel were interviewed to ascertain the payroll procedures being used in the department. You determine that * 1. The payroll clerk receives the time cards from the various department supervisors at the end of each pay period, checks the employee’s hourly rate against information provided by the personnel department, and records the regular and overtime hours for each employee. * 2.
The payroll clerk sends the time cards to the plant’s data processing department for compilation and processing.
* 3. The data recessing department returns the time cards with the printed checks and pay- roll register to the payroll clerk on completion of the processing. * 4. The payroll clerk verifies the hourly rate and hours worked for each employee by comparing the detail in the payroll register to the time cards. * 5. If errors are found, the payroll clerk voids the computer-generated check, prepares another check for the correct amount, and adjusts the payroll register accordingly. 6. The payroll clerk obtains the plant signature plate from the accounting department and signs the payroll checks. * 7. An employee of the personnel department picks up the checks and holds them until they are delivered to the department supervisors for distribution to the employees. * Required * a. Identify the shortcomings in the payroll procedures used in the payroll department of the Galena plant and suggest corrective actions. * 1. Payroll hours are not approved by production management. * 2. Lack of segregation of duties in payroll department. * 3.
Personnel department has access to payroll checks. * b. Identify the weaknesses, if any, that you believe are material and the reasons why. * ECMA (adapted) * 1. Timescale should be signed by employee and supervisor. * 2. One payroll clerk should prepare payroll data for processing department. Another payroll clerk should reconcile the payroll register to the time cards. * 3. A payroll supervisor should authorize the void of checks with errors and subsequent preparation of manual replacement. * 4. Checks should be held in secured storage until distribution. 5. Checks should be distributed by treasurer office * 16-35 (Potential misstatements/tests of controls?payroll) The following questions are included in the internal control questionnaire on control reoccurred for payroll transactions in the Penn Company: * Required * a. Identify a misstatement that may occur if a No answer is given to each question. * b. Identify a possible test of controls assuming a Yes answer is given to each question. (Present your answers in tabular form using separate columns for each part. * * (a) Misstatement I * (b) Test of Controls I | * Are pay rates, payroll deductions, and terminations authorized by the personnel department? I * Pay rates may increase or decrease without authorization. Deductions may be incorrect. Terminated employees may remain on the payroll. Inquire/ observe procedures for authorizing pay rate changes and deductions. Confirm deductions with IRS data. Examine termination notices. *21 * Are time clocks and clock cards used? I *Employees may be paid for hours they did not work.
I *Observe employees clocking in and out. * Is there supervisory approval of time worked by each employee? I Employees may be paid for hours they did not work. I * Examine time tickets for supervisor approval. | *4 | * Are payroll checks signed and distributed by treasurer office personnel? I * Checks may be distributed to the wrong person, terminated employees, or a fictitious employee. I *Witness payroll distribution. Examine employee master file. I * Is there internal verification of payroll checks with payroll register data?
I * Processing errors may occur in payroll recording. * Observe data entry procedures. Review exceptions and control report. * 6 | * Are unclaimed wages controlled by a treasurer’s office employee? I * Unclaimed wages may be misappropriated. I * Compare receiving form against unclaimed checks. | *7 | * Is access restricted to personnel and employee earnings master files? I * Unauthorized changes may be made to personnel and payroll data. I * Examine who has access to personnel and employee earnings master files I * Are hiring authorized by personnel department?
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