The auditor is gathering evidence for which audit objective? List five tests of controls that can be performed for the payroll and personnel cycle and state the purpose of each control tested. About the Author Kaye Morris has over four years of technical writing experience as a curriculum design specialist and is a published fiction author. You may find that several controls buttress each other, so that there are overlapping effects resulting from multiple controls. Although it is more difficult to commit payroll fraud on a smaller business, one method of financial theft is by cutting checks to terminated employees and then altering the checks for cashing or colluding with the terminated employee to cash the checks and provide a kick back. What is the auditor's best source of evidence? When check signers leave the company, remove them from the authorized check signer list and forward this information to the bank.
Compare direct labor as a percentage of sales with previous years. Inherent risk is typically low for all balance related audit objectives. Rate Authorization Form The Form that authorized the rate of pay. Verify Pay Rate Verify the pay rate entered into the payroll processing system for each employee. Payroll rates should always be in writing, approved by an owner or manager, and filed with other employee paperwork.
Examine the time card for the approval of a foreman. C amount expended to date in the current period. B a well-defined set of policies that indicate when each form must be filed. Use password protection if these records are stored on line. . These custom papers should only be used with proper reference. C Accrual of salaries is the same as the amounts paid on the payroll tax returns.
. Payroll Transaction File A computer -generated file that includes all payroll transactions. C The duties of hiring, payroll computation, and payment to employees should be segregated. Add Remove How are the tests of controls, substantive tests of transactions, and analytical procedures for the and collection cycle, payroll and personnel cycle, and acquisition and payment cycle similar? Reconcile the monthly payroll total for direct manufacturing labor with the labor cost distribution. These may not all indicate certain errors, but the probability of underlying errors is higher for the reported items. In addition, designating a member of management for periodic review of company bank records pertaining to the payroll can further ensure proper payroll records and reduce the risk of fraud. C Payroll is a significant portion of inventory for retail and service industry companies.
B It is difficult for an auditor to discover fraudulent hours. Have one person prepare the payroll, another authorize it, and another create payments, thereby reducing the risk of unless multiple people in doing so. Like us on Facebook: Visit the website where you can search using a specific term: Connect with Linked In: Understand Internal Control and Assess Control Risk—Payroll and Personnel Cycle Internal control for payroll is normally highly structured and well controlled to manage cash disbursed, to minimize employee complaints and dissatisfaction, and to minimize payroll fraud. Such a check might otherwise be stolen and cashed. Compare the employee name, date, check number, and amounts on cancelled checks with the payroll journal.
The inventory purchasing system only allows purchases from pre-approved vendors. C It is ordinarily easier for the client to prevent fraudulent hours by adequate internal controls than for the auditor to detect it. Transactions in the payroll and personnel cycle are recorded in the proper period cutoff. Some types of payroll errors can be spotted by running reports that only show items that fall outside of the normal distribution of payroll results. . C Examine the payroll records for indication of pay rate approval.
The payroll manager or a third party not involved in payroll activities should run and review these reports. . Doing so prevents someone from fraudulently increasing the amount on an existing paycheck or creating an entirely new one, since the funds in the account will not be sufficient to pay for the altered check. Otherwise, they could still sign company checks. D the use of an outside payroll service. Transactions in the payroll and personnel cycle are recorded in the proper period. This precaution is not just to keep someone from accessing the records of another employee, but also to prevent unauthorized changes to records such as a pay rate.
The same control applies for any pay rate changes requested by a manager. A An error that indicates possible fraud B Computational errors in formulas when a computerized system is used C Classification errors in charging labor to inventory and job cost accounts D Each of the above gives the auditor significant concern. B the substantive tests of transactions for the payroll cycle are the same for all audit clients. . C performing extensive tests of details.
. Rate authorizations: without which the employee may be getting paid at the wrong rate 3. Doing so prevents a type of fraud where a creates a check for a , and pockets the check. The most important control in the timely preparation of these returns is: A computerized preparation of tax returns. Payroll Master File Used for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date. The following are steps in the methodology for designing tests of controls, substantive tests of transactions, and tests of details of balances for the payroll and personnel cycle not in the correct order : - Design tests of details of balances for the payroll and personnel cycle.