16-35 (Potential misstatements/tests of controls?payroll) The following questions are included
in the internal control questionnaire on control procedures for payroll transactions in the
1. Are pay rates, payroll deductions, and terminations authorized by the personnel
2. Are time clocks and clock cards used?
3. Is there supervisory approval of time worked by each employee?
4. Are payroll checks signed and distributed by treasurer office personnel?
5. Is there internal verification of payroll checks with payroll register data?
6. Are unclaimed wages controlled by a treasurer's office employee?
7. Is access restricted to personnel and employee earnings master files?
8. Are hirings authorized by personnel department?
9. Is time clock punching supervised?
10. Is responsibility assigned for the timely filing of payroll tax returns and payment of
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.)
The response is presented in a tabular format for ease in reading. See attached word doc.
Potential Misstatements Possible misstatement for a "No" Response Test of Controls for a "Yes" Response
1. Are pay rates, payroll deductions, and terminations authorized by the personnel department? Fraud is a concern using such techniques as a ghost employee or false hours/salary reported. Authorization should start with the department who hires. Test for time card approvals starting with department supervisors and a second approval in Personnel or HR. Pay rates can be traced to personnel files.
2. Are time clocks and clock cards used? If no, and individuals work on hourly rates or have overtime, a department supervisor should approve all time to prevent overstatement of hours. Test that time cards are approved by the payroll supervisor. A control total or control sheet should be attached to the cards including signatures from more than one department. Test the comparison of totals to cards.
3. Is there supervisory approval of time worked by each ...
For each of the statements, a response of a sentence or two explains consequences of yes and no answers.