A. Based on the information presented above, and taking into consideration both

Question

A. Based on the information presented above, and taking into consideration both manual and automated controls, describe the:

1. Control strengths in MVF Company’s payroll process.

2. Control deficiencies in MVF Company’s payroll process.

B. MVF Company’s senior management, including the CAE, realizes that the company’s payroll process needs to be upgraded.

1. Brainstorm ideas as to how the company could more effectively leverage IT to improve the payroll process.

2. Discuss the risk and control implications of the ideas generated in B.1.

CASES CASE 1 MVF Company manufactures engine parts for lawn mowers, snow blowers, and other types of yard care equipment. The company employs approximately 300 production employees. Production employees alternate back and forth between two shifts and are sometimes asked to work overtime. MVF's CAE has asked Alyssa Worcshard, a first-year internal auditor, to gather information about the controls over the company's production payroll process. Worcshard reviewed the process, interviewed selected personnel, and documented the following information about the process. The personnel department prepares a personnel action form when a production employee is hired or terminated. Action forms also are used to document changes such as changes in pay rates, deductions, employee names, employee addresses, etc. A personnel department employee keys the information from the action forms into the computer each week to update the personnel master file personnel Production employees use a time clock to record the hours they work. At the end of each week, production supervisors collect the time cards, verify the number of hours worked for each employee, and document the total number of hours worked on each employee's time card. Each supervisor also counts the number of time cards collected and emails the count to MVF's treasurer Every Monday morning, a payroll employee collects the previous week's time cards from the production supervisors, sorts them by employee number, recalculates the total hours on each time card, keys the data from the time cards into the computer, and processes the production payroll. The system automatically assigns a sequential number to each payroll check produced. Blank checks are stored in a box next to the printer for immediate access. Controls are imbedded in the payroll application software to detect invalid employee numbers, unreasonably high numbers of hours worked, etc. The computer also determines whether overtime has been worked or a shift differential is required. Invalid data is printed on an error listing The payroll employee then Prints the payroll register and payroll checks. Separates the checks into a valid batch and a batch of those that were included in the

Explanation / Answer

Control deficiencies:

1.Instead of using a time clock, a biometric attendance system could be used.

2.Instead of reviewing and updating the time cards weekly, review can be done on daily basis for better control

3. Blank cheques should be kept in safe custody and not somewhere where it is easier to access. As blank cheques can be misused by any person, a responsible employee should be given custody of it.

4. Instead of collecting the time cards on Monday mornings, the time card should be collected at the end of the week itself otherwise there is scope of tampering with the time cards

Strengths :

1. Segregation of the duties of hiring, payroll processing and disbursement is essential to mitigating this risk which is being followed by the company

2. That those in charge of processing employees into the payroll system were not involved in disbursing checks to fictitious employees they have created

3. Adequate procedures governing the hiring and firing process, and controls to ensure that new hires are adequately screened and that rigorous background checks are performed on them

Procedures the auditor can perform to try to detect this scheme include:

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