Rico, Jalaica B.

– BSA 2

Answers:
Problem 1 – PAYROLL FRAUD
Required:
1. Describe two control techniques to prevent or detect this fraud scheme.

 A personnel department employee action report should include a list of all current workers.
When reconciling time cards with the personnel report, time cards for dismissed or nonexistent
workers should be recognized.
 Wages should be distributed to employees by an impartial paymaster. If an employee does not
appear to get his or her paycheck, it should be returned to the payroll department.

Problem 2 – PAYROLL PROCEDURES

Required:
a. Analyze the internal control weaknesses in the system. Model your response according to the six
categories of physical control activities specified in the SAS 78/COSO control mode.

CONTROL ACTIVITIES WEAKNESS SUGGESTIONS

Transaction Authorization There is a shortage of personnel
action forms from Human
Resources, which raises the
possibility of illegitimate
employees collecting salaries.
Segregation of Duties None
Supervision Employees punch their
timecards in an unsupervised
area at a time clock. Because the
time clock is in an unsupervised
location, it is conceivable for an
employee to clock in for another
who is absent or late.
Accounting Records Due to the lack of a payroll
imprest account, ABC
Manufacturing is unable to keep
a complete payroll audit.
Access Control None
Independent Verification None
Payroll preparation should
involve the Human Resource
Department since it helps to
avoid payroll fraud by identifying
only authorized workers to
receive a paycheck.
None
To avoid this, timekeepers must
reconcile timecards with actual
attendance in order to maintain
track of the time. Furthermore,
employing new hardware and
software technologies, the
manual timekeeping procedure
should be automated.
When obtaining the Accounts
Payable summary, ABC Company
should utilize a payroll imprest
account since it prevents the
General Ledger Department
from distinguishing between
checks to workers and payments
to suppliers.
None
None
b. Make recommendations for improving the system

Some of the recommendations for improving the system are given below.

1. Biometric time clocks are used to identify personnel using fingerprints or band vein scan
technology. Instead of keeping actual fingerprints in the database, a mathematical method is
utilized for verification. As a result, employee privacy is protected.

2. Magnetic swipe cards are used in the same way as a credit card. Each employee receives an
identification card. Employee information is stored on a magnetic strip on the card. When an
employee swipes his or her card through the time clock, the time is recorded both in and out.
Additional verification may be requested in the form of a password or PIN.

3. Proximity cards are identical to swipe cards, with the exception that instead of swiping, these
cards must be put in front of the scanner to record in and out time. Even through wallets,
handbags, and card holders, these cards may be read.

4. Mobile remote devices can be used to keep track of time when employees are forced to travel
often in order to fulfill their job tasks. Employees may clock in and out using their mobile phones
or computers in this manner.