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Errors That Could Occur from Control Weaknesses

9.83 ICQ Items: Errors That Could Occur from Control Weaknesses.
Refer to the internal control questionnaire on a payroll system (Appendix 9A.3 - see below) and assume the answer to each question is "no." Prepare a table matching the questions to errors or frauds that could occur because of the absence of the control. Your column headings should be:

Question Possible Error or Fraud Due to Weakness

APPENDIX 9A.3
Payroll Processing
Environment: Yes/No Comments
1. Are all employees paid by check or direct deposit?
2. Is a special payroll bank account used?
3. Are payroll checks signed by persons who do not prepare checks or keep cash funds or
accounting records? a. If a check-signing machine is used, are the signature plates controlled?
4. Is the payroll bank account reconciled by someone who does not prepare, sign, or deliver
paychecks?
5. Are payroll department personnel rotated in their duties? Required to take vacations? Bonded?
6. Is there a timekeeping department (function) independent of the payroll department?
7. Are authorizations for deductions, signed by the employees, on file?
Existence or occurrence:
8. Are time cards or piecework reports prepared by the employee approved by his or her supervisor?
9. Is a time clock or other electromechanical or computer system used?
10. Is the payroll register sheet signed by the employee preparing it and approved prior to payment?
11. Are names of terminated employees reported in writing to the payroll department?
12. Is the payroll periodically compared to personnel files?
13. Are checks distributed by someone other than the employee's immediate supervisor?
14. Are unclaimed wages deposited in a special bank account or otherwise controlled by a
responsible officer?
15. Do internal auditors conduct occasional surprise distributions of paychecks?
Completeness:
16. Are names of newly-hired employees reported in writing to the payroll department?
17. Are blank payroll checks prenumbered and the numerical sequence checked for missing
documents?
Rights and obligations:
18. Is a qualified person assigned to track retirement obligations?
19. Is an actuary employed, and are assumptions used reviewed by responsible officers?
Valuation or allocation:
20. Are all wage rates determined by contract or approved by a personnel officer?
21. Are timekeeping and cost accounting records (such as hours, dollars) reconciled with payroll
department calculations of hours and wages?
22. Are payrolls audited periodically by internal auditors?
23. Are individual payroll records reconciled with quarterly tax reports?
Presentation and disclosure:
24. Do payroll accounting personnel have instructions for classifying payroll debit entries?
25. Are monthly, quarterly, and annual wage accruals reviewed by an accounting officer?

Attachments

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Five functional responsibilities should be performed by separate people or departments. They are:

Personnel and Labor Relations­­hiring and firing.

Supervision­­approval of work time.

Timekeeping and Cost Accounting­­payroll preparation and cost accounting.

Payroll Accounting­­check preparation and related payroll reports.

Payroll Distribution­­actual custody of checks and distribution to employees.

Matching the questions to errors or frauds that could occur because of the absence of the control.

1. Are all employees paid by check or direct deposit?
No,
Fraud can occour:
Employees' checks can credited to incorrect employees' accounts.

2. Is a special payroll bank account used?

No,
Fraud can occour:

Can lead to amount withdraw greater than required for payroll payment.

3. Are payroll checks signed by persons who do not prepare checks or keep cash funds or
accounting records? a. If a check-signing machine is used, are the signature plates controlled?

No,
Fraud can occour:

Then the excess amount can be paid to the employees'

(As there is no watching by the other person)

4. Is the payroll bank account reconciled by someone who does not prepare, sign, or deliver
paychecks?

No,

Fraud can occour:
Then the excess amount can be paid to the employees'
(As the same person reconciles it, thus it makes the task ...

Solution Summary

This discusses the Errors That Could Occur from Control Weaknesses

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