Bunag, Sherilyn C.
BSA – A2A
a. Identify weaknesses in current procedures, and explain the threats that they may allow to
occur.
Weakness
Factory supervisor is the sole responsible in
hiring all job applicants and forwarding their
W-4 form to the payroll clerk
Factory supervisor verbally informs payroll of
all employee pay raises
Factory supervisor determine pay rates
Blank time cards are readily available
Weekly time cards are not collected until the
next Monday
If an employee failed to turn in his timecard,
the employee is automatically removed from
the payroll master
The factory supervisor distributes pay checks
There were no proper segregation of duties
as the factory supervisor determine the pay
rates or prepared the records to be forwarded
to the payroll clerk and likewise responsible
for pay checks distributions or pay
disbursements
Threat
Factory supervisor could hire fictitious
employees and submit their W-4 form
Since there were no proper documentation
with regard to pay raises, it could impose
problems and lead to employee disputes and
litigation furthermore, furthermore, factory
supervisor could give fictitious employee
raises
Factory supervisor can manipulate pay rates
of new hires by underpaying or overpaying
them
An employee can cheat on his time card
records by having another employee fill out a
time card whenever they are late or even if
they are not at work
Time cards could be altered over the
weekend with fictitious or false information by
the employees in case of internal feuds or
conflicts among them
A sick employee or one on a vacation could
be “fired” because they did not turn in a
timecard due to their absence
The supervisor can conveniently and secretly
keep the pay checks of fictitious or fired
employees
This could lead to fraud in which the factory
supervisor keeps on submitting W-4 form of
fictitious employees and receiving their pay
checks for himself likewise
b. Suggest ways to improve the Kowal Manufacturing Company's internal controls over hiring
and payroll processing.

 A system of advice forms should be installed so that new hires, terminations, rate
changes and the like are properly reported to the payroll department in writing or written
documents. For better documentation, such forms should be submitted by the employee
and verified by the appropriate supervisor

 Suitable background checking or investigation should be done by contacting references

before applicants are hired to be able to determine their honesty and that they have no
undesirable personal characteristics

 Time cards provided should have improvements from being a blank time card, it should
be changed into one which has the employee’s name typed or printed onto it and it
should be provided to each worker at the beginning of each week by the payroll
department

 The foreman should be responsible in collecting the time cards at the end of the week,
check and approve them, and then, turn them over to the payroll clerk moreover, all time
cards should be accounted for and any missing cards should be investigated

 For proper segregation of duties, the payroll checks should be distributed to the workers
by a responsible person other than the supervisor / foreman. Unclaimed checks should
be sent to internal audit until claimed by the worker
Additionally, the following should be taken into consideration because the problem does
not mention that these are being followed:

 If the company has a cost system that requires the workers to prepare production
reports or to account for their time by work tickets, the time cards and the production
reports or work tickets should be compared and cross – verified

 Payroll checks should be pre-numbered to control their issuance

 A responsible person other than the chief accountant and the payroll clerks should
reconcile the payroll bank account

 From time to time, an officer of the company should oversee a payroll distribution at the
most random time possible