15.3 You have been hired to evaluate the payroll systems for
the skip rope manufacturing Company. The company processes its payroll
in-house. Use table 15-1 as a reference to prepare a list of questions to
evaluate skip rope’s internal control structure as it pertains to payroll
processing for its factory employees. Each question should be phrased so that
it can be answered with either a yes or a no: all “no” answer should indicate
potential internal control weaknesses. Include a listing the potential problem
that could arise if that particular control were not in place. (CPA
Examination, Adapted)
15.4 Although most medium and large company have implemented
sophisticated payroll and HRM system like the one describe in this chapter,
many smaller companies still maintains separate payroll and HRM system that
employ many manual procedure. Typical of such small companies is the Kowal
Manufacturing Company, which employs about 50 production workers and has the
following payroll procedures:
- The factory supervisor interviews and hires all job
applicants. The new employee prepares a W-4 form (Employee’s Withholding
Exemption Certificate) and gives it to the supervisor. The supervisor writes
the hourly rate of pay for the new employee in the corner of the w-4 form and
then gives the form to the payroll clerk as notice that a new worker has been
hired. The supervisor verbally advises payroll department of any subsequent pay
rises.
- A supply of blank time cards is kept in a box near the
entrance to the factory. All workers take time card on Monday morning and fill
in their names. During the week they records the time they arrive and leave
work by punching their time cards in their time clock located near the main
entrance to the factory. At the end of the week the workers drop the time cards
in a box near the exit. A payroll clerk retrieves the complete time cards from
the box on Monday morning. Employees are automatically removed from the payroll
master file when they fail to turn in a time card.
- The payroll checks are manually signed by the chief accountant
and then given to the factory supervisor, who distributes them to the
employees. The factory supervisor arranges for delivery of the pay checks to any
employee who is absent on pay day.
-The payroll bank account is reconciled by the chief
accountant, who also prepares the various quarterly and annual tax reports.
Required:
a)
Identify weaknesses in current procedures, and
explain the threats that they may allow to occur.
b)
Suggest ways to improve the Kowal manufacturing
Company’s internal controls over hiring and payroll processing.
(CPA Examinations, adapted)