Acme employs over 40,000 workers for three shifts, and most employees work overt

Question

Acme employs over 40,000 workers for three shifts, and most employees work overtime when necessary. Additional information about payroll procedures follows:

• A local accounting firm provides Acme with monthly payroll tax updates, which are used to modify the tax rates.

• The HR department determines the wage rates of all employees. The process begins when a form authorizing the addition of a new employee to the payroll master file is sent to the payroll coordinator for review and approval. Once the information about the new employee is entered in the system, the computer automatically calculates the overtime and shift differential rates for that employee.

REQUIRED: on word, each bull it point, identify and describe the weaknesses in Acme Enterprises’ payroll process. labol each bull it point.

Explanation / Answer

Internal control in a payroll department safeguards employee information and protects company financial resources. Weaknesses not only increase the chance that data entry errors will cause payroll discrepancies but also expose a business to fines, penalties and a diminished reputation. Identifying and addressing internal control weaknesses that have the potential to affect the payroll process can prevent negative consequences that exploitation of these weaknesses can have on a business and its reputation.

Data Collection

Internal control weaknesses can start with data collection if a business uses a manual or non-computerized timecard system. Control risks inherent with manual timecards focus mainly on buddy punching and falsifying timecard information. The likelihood of either of these happening increases exponentially with weak or intermittent timecard verification procedures. Weak verification procedures can also fail to catch a missing timecard, meaning that if an employee fails or forgets to submit timecard information, the employee may not get paid.

Separation of Duties

Putting one person in charge of the entire payroll process or not enforcing separation of duties internal controls is an open invitation to embezzlement and fraud. An example of this is a ghost-employee scheme in which a fictitious employee gets entered into payroll system and continues getting paid until the scheme is uncovered. Without adherence to separation of duties controls that create a strong system of checks-and-balances the scheme could go on for an extended period of time. A comprehensive scheme to defraud a company could include numerous fictitious employees and have a profound effect on the bottom line.

Data Security

Security controls are meant to ensure employee’s personal and payroll information remain private. Weak security controls for hard copy information, blank checks and check stamping equipment can lead to theft of information, money or equipment. Identity theft can result from weak internal controls and leave the affected employee in financial ruin. This most often happens when private information is left on display when stepping away from a computer workstation – even for just a minute – or by not using strong passwords to secure private employee data. Employee information is also subject to privacy laws and violations can cost a business both financially and in terms of its reputation.

Internal Audit

Even the strongest payroll controls can’t eliminate every chance or instance of errors, inconsistencies or fraud. If internal controls don’t include as a last line of defense both random and regular internal audit reviews, this weakness can allow errors, inconsistencies or fraud to slip through the cracks. Ignorance is never a defense if identity theft results in legal actions. A business can prosecute an employee who misappropriates business assets or financial resources but may never recover the stolen property or the full amount of the stolen money. In addition, it can years to repair a reputation ruined by one dishonest employee

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