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    Ghosts on the Payroll

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    Read the section entitled Ghosts on the Payroll on p. 563. How could the company reasonably have prevented the issues presented in the case?

    GHOSTS ON THE PAYROLL fictitious checks were white, but the file copies of legitimate checks were green. Several additional
    clues indicated the presence of the fraud:

    - Multiple direct deposits were made to the same bank account but under different employees' names.
    - None of the fake employees had a personnel file or amounts withheld.
    - Employee numbers for the ghost employees were higher than those of other employees.

    Confronted with the evidence, Turner pleaded guilty to the charges. Under a plea bargain agreement, he was ordered to make restitution and was sentenced to 15 years of probation.

    Source: 'Keep Ghosts Off the Payroll', - Joseph T.Wells,
    Journal of Accountancy (December 2002), pp. 77-82.

    Turner was extremely ill and needed expensive medicines to treat his condition. He was responsible for recording payroll hours and preparing payroll records at the not-for-profit organization where he was employed. A separate employee was responsible for adding and deleting employees to the payroll system. However, Turner circumvented this control by looking
    over her shoulder to steal her user ID and password, allowing him to add fictitious employees to the payroll.

    After adding the 'ghost' employees to the payroll, Turner input wage and other relevant information and arranged for direct deposit of the fictitious employees' pay to his own bank account. He also created fictitious documentation for the ghost employees' work, as well as file copies of the paychecks. The fraud was detected by the organization's external auditor.

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    Solution Preview

    A company should set up checks and balances in their internal control section for payroll in order to prevent fraud from their payroll department. There are four steps that should be set up in order to prevent what turner did to the company. The steps are separation of duties for each personnel in the department, authorize, review, and ensure that payroll entries and personnel actions follow policy, and then you are adhering to accountability principles. Maintain data confidentiality by giving payroll and personnel access only to authorized ...

    Solution Summary

    This solution lists and discusses checks and balances for their internal control section for payroll in 319 words.