Professional Documents
Culture Documents
REVIEW QUESTIONS
1. Job tickets capture the time spent on each job during the day and are used
cards for nonexistent employees. The resulting paychecks, when given to the
supervisor are then cashed by the supervisor. This type of fraud can be reduced
payroll based on the payroll summary. When the paychecks are cashed, this
account should clear leaving a zero balance. Any errors in checks (additional
account and/or some paycheck would not clear. This will alert management to the
5. A form of payroll fraud involves employees clocking the time cards of absent
employees. By supervising the clocking in and out process, this fraud can be
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reduced or eliminated.
the authorization of new employees and changes in job class and pay rates. It
enables the Payroll Department to prepare a list of currently active employees. Any
be detected.
7. The payroll clerk reconciles the information received from personnel and
production, calculates the payroll and distributes the paychecks. Further, the
8.
accounts).
clearing).
database.
10. Proximity cards are similar to swipe cards but don’t require the user to slide
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the card through a reader. Instead, the employee places the card in front of the
reader to record attendance time. The advantage is that these cards can be read
12. The fixed asset system processes non-routine transactions for a wider
group of users in the organization than the expenditure cycle. Further, the
the production function and finished goods inventories for the sales function. The
systems must include cost allocation procedures in order to account for the
apportioned acquisition cost and depreciation of the fixed asset. This is not
14. The typical information found on a depreciation schedule is: type of asset,
amount, book value, and asset location. Also, a group code may be assigned. The
physical location of the asset is recorded, and the verification that this asset exists
should be performed by physically observing the asset. The date and amount of
the purchase of the asset can be verified by locating the original purchase order
15. Because the fixed asset department authorizes the removal of the asset
from the general ledger, they must know when to record the authorization. Further,
if improvements or asset disposals are made and the fixed asset department is
unaware, then the depreciation amounts calculated and reported in the financial
16. The auditor should review the authorization control procedures to determine
auditors should also examine the supervision controls over the physical guarding
of the assets. Lastly, the auditors should periodically verify the location, condition,
and fair value of the organization’s fixed assets against the fixed asset records in
17. The fixed asset department provides record keeping for fixed asset
inventory.
18. The fixed asset depreciation schedule shows when and how much
19. When an asset is taken out of service, the responsible manager issues a
request to dispose of it. Like any other transaction, the disposal of an asset
requires proper approval that will be determined by its nature and materiality. In
the manager in charge of the asset may have the authority to dispose of it.
20. Unlike production assets, fixed asset inventory is distributed widely across
DISCUSSION QUESTIONS
1. The job ticket is used to allocate each labor hour of work to specific WIP
accounts. These job tickets are very important for cost accounting. The job tickets
are completed by production workers as they capture the total amount of time that
they spend on each production job. Upon completion, they route these to the cost
accountants who use them to post the labor costs to specific WIP accounts such
as direct labor, indirect labor and overhead. The cost accountant prepares a labor
distribution summary which contains the information for the general ledger clerk to
2. Payroll costs such as wages to workers accrue each minute, hour or day
that they work. However, these costs are not recorded as a liability during the time
between when the workers earn their wages and when they are paid. These time
lags typically average from half a week to a week. This time lag is of no concern
until the firm is closing its books or preparing interim financial statements. At these
points, however, estimates or accruals of the amounts owed should be made and
directly enter time and attendance data into the system, the organization is at risk
from data entry errors and payroll fraud. Input controls reduce these risks. For
example, limit tests are used to detect excessive hours reported per period. Also,
the use of biometric scanners, swipe cards, and PINs reduce the risk of payroll
fraud by ensuring that the individuals clocking into the system are valid employees.
transferring this function to a third party, the client organization avoids the salaries
and benefit costs of running an in-house payroll department. Also, the cost of
matters. Such training is disruptive, costly, and can be avoided by outsourcing the
payroll function.
5. One example is the reduction in the time it takes to record the receipt of
inventory into the inventory records. Further, the automated system will be less
likely to pay an invoice early, while at the same time not missing the discount
6. Law firms require their employees to log the amount of time spent on each
client for billing purposes. Accounting firms also require that their employees keep
job tickets for the time they spend on each client. Car repair shops are another
example. The mechanic must keep track of how much time he/she spends working
on each automobile.
7. The risks associated with outsourcing are nontrivial. One is that an outside
organization will have access to extremely confidential employee data and to the
client firm’s financial resources. Another risk is that the service provider will have
poor internal controls and/or act incompetently in a way that causes material errors
or fraud. A client organization may outsource any function it chooses, but it cannot
each period will be overstated, and equity will be misstated. Further, if insurance
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independent approval process that evaluates the merits of the request on a cost-
benefit basis.
security of fixed assets. Supervisors must ensure that fixed assets are being
the useful life of the asset, the original financial cost, proposed cost savings as a
result of acquiring the asset, the discount rate used, and the capital budgeting
ii. The internal auditor should verify the location, condition, and fair
value of the organization’s fixed assets against the fixed asset records in the
subsidiary ledger.
system should be reviewed and verified for accuracy and completeness. System
10. The responsible supervisors must authorize the disposal of the computer.
11. Perform an annual physical inventory of fixed assets and adjust the records
to reflect assets no longer on hand. Prepare reports about the disposal of assets.
12. Prepare reports about the transfer of fixed assets. Perform an annual
physical inventory and note the location of assets. Budget and then hold each
department.
13. Authorize fixed asset acquisitions; part of the authorization is showing that
expense could be overstated. Assets on property tax returns will be overstated and
too much tax will be paid. Insurance premiums will be paid on nonexistent assets.
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MULTIPLE CHOICE
1. D
2. D
3. B
4. A
5. B
6. D
7. C
8. E
9. A
10. D
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PROBLEMS
1. PAYROLL FRAUD
all current employees. Time cards for terminated or non-existent employees should
2. PAYROLL CONTROLS
submit time cards for terminated employees. Since the foreman also distributes
b.
should list all current employees. Time cards for terminated or non-existent
3. PAYROLL CONTROLS
Risks:
a. Foremen have too much control over the human resources they are
b. The high degree of casual labor creates an environment that lends itself to
abuse.
employees difficult.
Controls:
4. FLOWCHART ANALYSIS
account. This can result in undetected payroll errors and payroll fraud.
authorizes the cash disbursements department to issue a check for the entire
5. SEPARATION OF DUTIES
Personnel Employees:
ii. Should not be able to submit time and attendance data for
employees.
Payroll Employees:
attendance data
3. The central storage of sensitive data requires multilevel security that ensure
privacy and accuracy of data by limiting access to certain processes and data to
authorized personnel.
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Risks:
a. Supervisor submits the personnel action form and time cards. This allows
and is also writing the funds transfer check. This is a segregation of duties
problem.
Controls:
paymaster.
by Cash Disbursements.
a. Transaction authorization
action form.
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b. Segregation of duties
done by payroll.
iii. Payroll checks and vendor check are paid through the general cash
iv. The supervisor should not distribute the paychecks to employees. This
c. Accounting records
Risks:
a. The user’s authority to select vendors and prepare purchase orders without
b. The user’s authority to receive and validate the invoices without independent
d. Cash disbursements makes payment base only on the invoice from the user.
e. The absence of accounts payable form the process allows for the payment of
Controls:
disbursements.
A fixed asset function should be implemented to account for acquisition, use, and disposal
of the assets.
Risks:
a. Users have custody of the assets and maintain usage records. Key
employee.
Controls:
Risks:
f. User has custody of the asset and maintains the fixed asset ledger.
Controls:
disbursements.
checking “in” and “out.” The inherent threat here is that employees can
Supervisors may submit time cards for employees who no longer work or have
c. Recommendations
batch that he submits to payroll and cover this act by providing a falsified
employees.
ii. Overpayment: his access to payroll action forms allows him to change
supervisor
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a. Payroll DFD
Employee
Information Employee
Records
Time Cards Reviewed
Record Review
Time Cards Prepare
Hours Time
Payroll
Worked Cards
File
Time Cards , Payroll
Register Copy
Hours Worked
Payroll Register
Print
Employees checks Payroll Register
and File
Update
Accounts
Signed Paychecks
Paychecks
Signed Paychecks
Sign
Distribute Checks
Checks
c. Uncontrolled Risks:
attendance records.
control accounts.
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4. Payroll drawn on general cash account rather than a clearing account. This
6. Foremen authorize time cards and distribute paychecks. This permits the
d.
Physical Controls:
an audit trail.
7. Use payroll action form to verify the status of employees before preparing
paychecks.
IT Controls
1. Limit tests
2. validation controls
5. Error Messages
6. File backup
GREEN PRODUCTS
c. Uncontrolled Risks:
Payroll
2. Accounting errors and fraud because AP and Cash disbursements are not
procedures.
Fixed Assets
1. The firm may pay for assets that are incorrect, damaged, or not actually
3. Fraud is possible because the end user has sole responsibility for fixed
i. Physical Controls
Payroll:
Fixed Assets:
prepared.
inventory records.
ii. IT Controls
a. Limit tests,
b. Validation controls,
d. Error Messages
e. File backup
c. Uncontrolled Risks:
Payroll
distributes paychecks
submitted.
procedures.
Fixed Assets
1. The firm may pay for assets that are incorrect, damaged, or not actually
on the invoice
i. Physical Controls
Payroll
Fixed Assets
2. General ledger should receive accounts payable summary from the AP department
department.
ii. IT Controls
a. Limit tests,
b. Validation controls,
d. Error Messages
e. File backup
c. Uncontrolled Risks
Payroll
Fixed Assets
1. Accounting errors
i. Physical Controls
Payroll
employees
should not submit and review time cards and also distribute paychecks.
so.
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Fixed Assets
report is prepared.
records.
asset records.
ii. IT Controls
a. Limit tests,
b. Validation controls,
d. Error Messages
e. File backup
c. Uncontrolled Risks
Fixed Assets
asset custody.
2. The firm may pay for assets that are incorrect, damaged, or not actually
procedures.
Payroll
submitted.
i. Physical Controls
Fixed Assets
keeping.
ledger.
Payroll
valid employees.
ii. IT Controls
1. Limit tests,
2. validation controls,
5. Error Messages
6. File backup
8. Multilevel security
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COMPUTER PROCESSING)
c. Uncontrolled Risks
Payroll
checks.
procedures.
Fixed Assets
2. The firm may pay for assets that are incorrect, damaged, or not actually
checks.
i. Physical Controls
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Payroll
valid employees.
Fixed Assets
ii. IT Controls
a. Limit tests
b. Validation controls
d. Error Messages
e. File backup