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TABLE OF CONTENT

NO. CONTENT PAGES

1. INTRODUCTION OF COMPANY 2

2. INTRODUCTION OF KEY BUSINESS PROCESSES 3-6

3. DEFINITION OF PAYROLL CYCLE AND INTERNAL 7

CONTROL OF PAYROLL CYCLE

4. EFFECTIVENESS OF PAYROLL CYCLE 7-8

5. CONTROL WEAKNESS OF PAYROLL CYCLE 9 - 10

6. RECOMMENDATION OF PAYROLL CYCLE 11 - 12

7. REFERENCE 13
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I. (B) “Virtual” Company

II. Introduction of company

Kat Tau Fu Fa Sdn Bhd is a soy bean pudding manufacturer and it founded in year 2000
by Mr Kat Fa Chai. Kat Tau Fu Fa Sdn Bhd is formed by the merger of the Borneo
Gypsum Sdn Bhd in year 2005. It become the largest soy pudding manufacturer in
south Malaysia since 2010 and also wholesale its product to oversea. Besides, Kat Tau
Fu Fa Sdn Bhd having 20 manufacturing plants with nearly 500 person of worker in
the south Malaysia.

Tau Fu Fa is a dessert made by soy bean that came from China and it has nearly
thousand year history. It has been eaten by many different way in a different state of
China. However, when Tau Fu Fa first enter in to Malaysia it has been treated as a
dessert and served with syrup which is totally different with China. The key
ingredient in produce Tau Fu Fa is gypsum, it act as coagulate with the soy milk.

Furthermore, Kat Tau Fu Fa Sdn Bhd perform their daily operation based on their
company mission and vision in order to maintain the quality of Tau Fu Fa and satisfy
customer expectation. The mission of Kat Tau Fu Fa Sdn Bhd is produce the
smoothest taste of soy bean pudding to consumer while their vision is guarantee the
quality of soy bean pudding and provide optimal nutrition to meet physiological needs
to consumer.
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Kat Tau Fu Fa has more than 15 flavour to match with the soy bean pudding such as
green tea, red bean, strawberry, mixed fruit and so. Beside that, Kat Tau Fu Fa also
successfully exploit the new soy bean pudding by black bean. Black bean can reduced
the risk of cancer and prevention of cardiovascular diseases. Therefore, Black bean
pudding become the best seller during the launching period.

III. Describe ONE of the following key business processes in words and with
Document Flowchart OR System Flowchart:

Key business processes with flowchart

Kat Tau Fu Fa Enterprise is a wholesale homemade Tau Fu Fa company. The business

has seen enormous success throughout the years and Kat Tau Fu Fa enterprise is
applying payroll system in the business. First, the supervisor of Kat Tau Fu Fa
Enterprises at the production department will collects and checks time cards of the
employee every single month. Based on the staff IDs on the time cards, the wage rates
are pulled from the reference personnel file. The supervisor will write the wage rates on
the time cards and forward to the payroll department.

When the time cards had forwarded to payroll department, the payroll clerk will
reconcile, prepare the paychecks and post to employee records. The clerk also has to
updates register voucher and issues payroll register voucher. The paychecks will be
send to cash disbursements while the original of payroll register voucher is forwarded
to the account payable department and a copy of it is will be for filling purposes.

After the payroll register voucher is received, the account payables clerk will update the
account payable ledger and prepares an account payable summary. Besides, the clerk
also prepares a cash disbursement voucher for the total amount of the payroll. Then, the
copy of cash disbursements voucher will send to cash disbursements and general ledger
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department. Not only that, the account payable summary also forwarded to the general
ledger department.

Once the paychecks are received by cash disbursement department, the paychecks are
prepared and signed by the clerk, Then, the clerk will return the paychecks to the
supervisor in the production department for distribution to employees. Copies of the
paychecks are sent to the payroll department for reference. The cash disbursement clerk
prepares and verifies the recipient list of staffs and sends each copy to the account
payable department, the general ledger department and the bank.

The payroll clerk will reconcile the copy of paychecks with the payroll register and
filed it locally. Lastly, for the account payable department, the clerk matches the
verified recipient list of staffs with the account payable summary to update account
payable ledger. After received the verified recipients list of staff, the general ledger
clerk will compare and matches it with the account payable summary to update the
general ledger

.
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Production Department Payroll Department

Reconcile
and
Time
prepare
Time cards paychecks
cards

Paychecks Employee
Collect A Record
s and
review

Payroll
Update register

Write Reference
wage personnel Payroll
rates file register Payroll
voucher register
voucher (copy)

Time
cards

Paychecks
C copy

Reconcile

Paychecks

copy
Payroll
register
voucher
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Account Payable Department Cash Disbursements

Paychecks
Payroll
register
voucher

Prepare
and sign
Update paychec
and Account
ks
prepare Payable
ledger

Paychecks
Account
Payable B Paycheck Voucher
summary s
C
copy
Voucher D
Supervisor

Recipient list
of staff Prepare
(verified) and
verify

Match
Recipient list
and
of staff
update
(verified) Recipient list
of staff
Recipient list (verified)
of staff
(verified)

Account
Payable
ledger

Bank
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General Ledger Department

Account
Payable B
summary

Recipient list Voucher

D
of staff
(verified)

Match
and
update

General
ledger
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IV. From the selected cycles in part (iii),

(a ) Define the selected cycles and internal control for selected cycles as general.

A payroll system is software designed to organize all the tasks of employee payment
and the filing of employee taxes. These tasks can include keeping track of hours,
calculating wages, withholding taxes and deductions, printing and delivering checks,
completing direct deposit, paying premiums to insurance carriers, and paying
employment taxes to the government. Payroll software assists with compensating
employees for time worked. This software can be purchased through a HR software
vendor or can be included as part of a HR software package as a module within a
comprehensive system. Basically, payroll software helps with calculating pay checks
from hours logged in time and attendance tracking systems. The software then draws
pay checks or direct deposits funds into employees’ accounts. Taxes and deductions are
also calculated and withheld by payroll programs.

(b) Evaluate the effectiveness of the present system (at least 5 effectiveness)
Accounting Records

Sufficient or at least source documents are kept and filed in each department to allow
auditors to use as audit trails to prevent fraudulent activities. For example, time cards,
job tickets, payroll register, and cash disbursement voucher is kept and filed
within each department. This document is able to help auditors to verify the payroll
cycle and act as evidence.

Segregation of Duties

There are five different departments in Kat Tau Fu Fa payroll cycle. Every department
involves in every process and duty to ensure that the processes are running well. An
effective internal control system is able to incorporate segregation of duties of
accounting functions and other areas that deal with sensitive or valuable data. Duties
that are properly segregated improve record keeping, calculation, and authorization and
review process of every business function. This may help to prevent fraud and collusion
among employees.
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Transaction Authorization

Transaction authorization is to ensure that the payroll payment is for authorized

purposes and the personnel action form helps prevent to terminate employees from
receiving checks and wage rates from being improperly changed for current employee.
For instance, the hours worked by each employee, especially overtime, should be
authorized by the employee’s supervisor and evidence of approval maybe noted on all
time cards.

Access Controls

To provide electronic access into the payroll system, companies should implement
physical access controls. Personnel files should be secured in locked cabinets.
Furthermore, both the Human Resources department and the respective department
head should approve all personnel file changes. Check stock and signature stamps, if
applicable, should also be secured in locked locations. Access to the check stock should
only be accessible to those who are not authorized signers. If this segregation is not
practicable, then sequentially pre-numbered payroll checks should be accounted for by
someone independent of the of the payroll preparation process.

Independent Verification

Management should verified time cards and distribution of paychecks.to authorized

employees to ensure the fairness among all. The accuracy of payroll registered by A/P
department should verified by the management or third party. While G/L department
need to reconciles the labour distribution summary and the payroll disbursement
voucher
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( c ) Identify control weaknesses of the present system (at least 5 weaknesses)

Outsourcing the Payroll Function

Payroll outsourcing is an option that used by a service provider to manage the

administrative and compliance functions for paying workers in local or oversea
location. Kat Tau Fu Fa had used this outsourcing payroll function when they hire a
payroll service provider. This system is consider as a weakness because Kat Tau Fu Fa
is consigning their payroll tasks to a foreign company, thus it may not get help
immediately when needed. Besides that, the company may have to consume time in
waiting to get any problems resolved in the situation of the payroll service provider has
many clients. In result, this will make the employer become frustrate in the urgency
situation. According to the Internal Revenue Service, the employer will be penalty from
federal if the payroll service provider makes an error on tax calculation. Overall, the
outsourcing payroll function is a weakness of Kat Tau Fu Fa because the payroll is
being processed off-site and the employer may not know about the problem or error
until payday.

Data Collection in Manually

Start-up organizations like Kat Tau Fu Fa may use a manual in house payroll system to
process the payroll system. This is consider as an opportunity to the company in order to
expand the business because they does not need to spend any expensive service fees or
expensive software packages to operate their company. With this, timecard, wages and
payroll tax computations and wage garnishments are done by payroll service provider
manually. However, manual payroll system could lead to high room for error. For
example, manual timecards focus primarily on punching buddies and forging timecard
information. In addition, the employee may not get salary if he/she fails to punch
timecard, missing timecard or forget to submit the timecard.

Data Security
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Security controls is perform to ensure employee’s personal and payroll information

always remain private. In a weak security controls, the hard copy information, blank
checks and check stamping equipment of employees may result in theft of information,
money and equipment. Theft problem can significantly affect the employee and
employer in financial ruin. This theft situation mostly happens when the employee’s
information is not secure by a strong password or the employee’s information is left on
display when the payroll service provider is stepping away from a computer
workstation. On the other hand, theft also can occur in another way, such as duplicate
payments. In a duplicate payment fraud, the thief is usually a payroll department
employee, thus he/she can pays himself twice. Other than that, the theft also can change
the bank account of terminated employee to his own account. In this case, he/she also
can receive payments twice.

Lack of a Payroll Preview

In the process of paychecks, payroll systems will produce a set of reports that can be
reviewed for accuracy before the checks are printed and direct deposits are activated.
Before paying checks to employees, the payroll preview should be carried out by an
employee or department that other than the employee who responsible for payroll
processing. This action is ignoring by most of the company included Kat Tau Fu Fa.
Thus, the company had faced the problem with miscalculating in the salary of
employees. In the process of review, employee who responsible need to ensure that
employees are only paid for work done, wages are only paid to valid employees, wages
are paid at the correct rates of pay and no errors in payroll calculations.

Timesheet fraud

Based on research, we found that almost 75% of businesses are affected by time theft
included Kat Tau Fu Fa. This situation happens when an employee increasingly claim
their pay to be worked more hours than they actually working hours. This type of
offense may lead to a significant loss of the company if occurs over a long periods of
time. With this timesheet fraud, the employee can steal the time in many ways such as
recording inaccurate times, conducting personal activities on working time, or taking a
long breaks frequently. Most of the activities is due to ambiguity if professional and
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personal time rather than blatant theft, thus it making this type of fraud more nebulous
to identify.

(d) Make a specific recommendation for correcting each of the control weaknesses
(at least 5 recommendations)

Kat Tau Fu Fa Enterprise should establish a payroll department to overcome the payroll
function problem. With the presence of the payroll department, they could immediately
deal with any transaction related to the payroll whenever there is a conflict. As the
payroll is the utmost satisfactory factor for the employees, it is apparent that the form of
the payroll department is essential. The payroll department could solve any frustration
of the employees related to their salary. Besides that, since the employer has the
responsibility to ensure the accuracy of the tax calculation that involves the payroll
expenses, it is important for the company to handle the payroll function by themselves.
The enterprise should adopt the computerized data collection system to improve the
efficiency in payroll system. As the company would eventually expand and the
operations would be more complex in the future, it is impossible to manage the payroll
system manually. The reasons for the impossibility include the man-made error which
could occur out of carelessness and the inability for the company to cope with that
many employees’ salaries manually. The computerized system is much convenient as
all records can be gathered, stored, managed and maintained electronically (Schieltz,
n.d.). This would also ensure that no conflict would happen as the systematic solution
would be capable of recording all the necessary and relevant information in regards to
the employees’ working activities and salary transactions. Nevertheless, the collected
information and data could act as a reference for the future employments, to further
improve the company’s productivity.

In order to strengthen the security of company’s data, any financial information

should be stored in a softcopy and online version. The online version should be
encrypted with password access to prevent any leakages of information. Also, only the
authorized personnels like the employer, the payroll department and the accountant
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could be granted access to the online documents. It is to prevent any theft from
occurring as no one would know who the theft could be, whether it is someone from the
inside or the outside of the company. The setting of difficult passwords is also crucial to
prevent any hackers from accessing the information. It only takes hackers a few
seconds to figure out the easy passwords when one uses month, ascending or
descending numbers and wordings to set as a password (Bonnette, 2017). Therefore,
the password should be somewhat difficult by containing symbols and combinations
unfamiliar to everyone to ensure the safety of company’s information.

Even with the computerized system, there remains the obligation for the company to
double check on the input amounts as well as the payroll amounts. Subsidiary entries by
recording the incorrect number figures into the account are most commonly found as an
error omitted by the recorders (Types of Error in Accounting, n.d.). As mentioned
above, the establishment of the payroll department should be responsible to prevent the
errors from occurring. In fact, one particular individual should be hired to be in charge
of this accuracy of payroll amounts to the employees. The conflict happens when the
employees argue that they do not receive the correct amount in their salary, and the
evidence of payment is also absent. Therefore, someone apart from the recorder, should
be given the duty to preview and go through the wages before it is paid out to the
employees.

Lastly, in order to encounter the timesheet fraud issue, the employer could invest in a
biometric time clock. It is a technology that uses a specific body part of the employees
to identify them. It could be used by requiring the fingerprint or facial recognition from
the employees while checking in to their works (Dehar, n.d.). This invention could keep
track of the employees’ working hours accurately without any discrepancies from both
employer and employees. The time theft should no longer exist as it is highly difficult
to duplicate a fingerprint or an iris of an individual. Although the cost of this investment
is high, it would be worth the money as the one-time investment could overcome any
inaccuracy in recording working hours of the employees.
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REFERENCE

Bonnette, Rowena (March 7th, 2017). What Makes Passwords Secure?Retrieved

February 20, 2020, from https://www.avatier.com/blog/what-makes-passwords
-secure/

Dehar, Ravi (n.d.). Everything you need to know about biometric time clocks.
Retrieved February 20, 2020, from https://joinhomebase.com/blog/biom
etric-time-clock-fingerprint/

Edward, H. (3 February, 2017). Weaknesses of payroll system. Retrieved from

https://medium.com/@EdwardHassi/weaknesses-of-payroll-system-450cdf9e5
a1e

Grace, F. (n.d.). The Disadvantages of a Payroll System. Retrieved from

https://smallbusiness.chron.com/disadvantages-payroll-system-2124.html

Jacky, L. (n.d.). An Internal Control Weakness in Payroll. Retrieved from https://

yourbusiness.azcentral.com/internal-control-weakness-payroll-26270.html

Schieltz, Matthew (n.d.). What Is Computerized Payroll? Retrieved February 20, 2020,
from https://smallbusiness.chron.com/computerized-payroll-12562.html

Types of Errors in Accounting: A Guide for Small Businesses (n.d.). Retrieved

February 20, 2020, from https://www.freshbooks.com/hub/accountingtypes
-of-errors-accounting
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The Safeguard Team. (8 July, 2019). Still relying on in-house global payroll? Retrieved
from https://www.safeguardglobal.com/blog/global-payroll/dangers

-of-in-house-global-payroll /