Part A: Findings and Recommendations for Management What recommendations do you
ID: 419590 • Letter: P
Question
Part A: Findings and Recommendations for Management
What recommendations do you have for management, based on the audit information for B, P, & J Truck Repair Service?
Recommendations should include:
· Purchases and accounts payable:Explain the results of the analytic procedures related to the accounts payable audit and what those results indicate.
· Internal control:Identify management's assertions regarding the internal controls and the effectiveness of each internal control within human resources.
· Production control:Identify the control objectives. Test the control activities (or procedures) of the parts inventory reporting system and explain the strengths and weaknesses.
Scenario
B, P, & J Truck Repair Service is a heavy-duty truck maintenance shop that performs various services for its customers. The company has two categories of purchases, stock purchases for ordinary maintenance and special purchases for major repairs. Stock purchases include shop supplies (shop towels, cleaning products, et cetera), general parts (oil, brake fluid, coolant, et cetera), and high-demand specialty parts (truck parts that are common to many vehicles). Specialty purchases include low-demand specialty parts (truck parts that are specific to a vehicle) and equipment (tools, truck lift, air compressors, et cetera). Stock purchases are estimated and made in advance of demand. Specialty purchases are only ordered on an “as needed” basis for specific parts or equipment.
Internal Control Audit
For each of the following items relating to an audit of B, P, & J Truck Repair Service, identify what establishes appropriate control, the problem or control that might arise if the control is missing, and a test that can be performed to verify that the control is operating effectively.
1. What is the proper segregation of duties between the supervisor, human resources, and payroll processing department for authorization to input changes to pay rates and payroll deductions?
2.What is the proper segregation of duties for authorization to hire and fire employees?
3.What approvals are required on time worked by employees before payroll is processed?
4.What happens when an employee’s bank information for EFT is improper and the transfer is not completed?
5.For hourly workers, what is required to verify check-in and check-out at the beginning and end of shifts?
6.How is the payroll checking account funded and reconciled?
Set up your answer in a table such as the one below.
Appropriate Control
Potential Problem or Misstatement
Test of Control
1.
2.
3.
4.
5.
6.
Appropriate Control
Potential Problem or Misstatement
Test of Control
1.
2.
3.
4.
5.
6.
Explanation / Answer
Item
Control
Risk if Missing
Test of Control
What is proper segregation of duties between the line, human resources and payroll processing department for authorization to input changes to pay rates, and payroll deductions?
Approval of pay rate changes occurs at the line level, but input of pay rate changes to the payroll master file is performed only by the HR department, or by the service organization upon receipt of the HR department approval to do so.
The risk is that misappropriation of company cash may occur if employees are permitted to simultaneously approve and enter pay rate changes.
Select a sample of pay rate changes, and vouch supporting documentation indicating the approval of the rate change was given by line personnel, as well as documentation indicating who actually entered the change and under what authority.
What is proper segregation of duties for authorization to hire and fire employees?
New Hire personnel files as well as Employee Termination files include requisitions initiated and approved by line department personnel.
The risk is that the operational needs of the organization will not be met if line departments are not given the requisite authority to hire, train, evaluate and terminate the employees operating in those departments.
Select a new hire and employee termination personnel file and confirm the existence of a requisition file from the line department requesting and approving the actions undertaken by the HR department.
What approvals are required on time worked by employees before payroll is processed?
Employee time sheets are prepared and approved by appropriate personnel.
The risk is that employees may not be paid accurately.
Review a sample of employee time sheets and confirm such time sheets include an authorized signature by a supervisor.
What happens when an employee’s bank information for EFT is improper and the transfer is not completed?
New Hire documents include a direct deposit form with a voided check from the employee's banking institution.
The risk is that employees may not be paid accurately.
Review a sample of employee direct deposits from the payroll detail package and vouch the account and/or routing numbers agree to the direct deposit form maintained in the New Hire personnel files.
For hourly workers, what is required to verify check in and check out at the beginning and end of shifts?
Employees “check in and check out” via time clock, time card, electronic log-in , fingerprint reader or other method.
The risk is that employees may not be paid accurately.
Review the system reports for a sample of employees in a given period and verify the number of hours paid per the payroll register agrees to the number of hours worked per the login script system report.
How is the imprest payroll checking account funded and reconciled?
Transfers to the payroll account are accompanied by transfer requests approved by the treasurer, and bank reconciliations for the imprest account are performed monthly by staff outside the HR function.
The risk is that misappropriation of company cash may occur if the payroll account is not reconciled.
Select a few months during the fiscal year and review the bank reconciliations for the month, agreeing the account deposits to approved and signed transfer request forms and the wires out to the payroll registers for the period(s).
Item
Control
Risk if Missing
Test of Control
What is proper segregation of duties between the line, human resources and payroll processing department for authorization to input changes to pay rates, and payroll deductions?
Approval of pay rate changes occurs at the line level, but input of pay rate changes to the payroll master file is performed only by the HR department, or by the service organization upon receipt of the HR department approval to do so.
The risk is that misappropriation of company cash may occur if employees are permitted to simultaneously approve and enter pay rate changes.
Select a sample of pay rate changes, and vouch supporting documentation indicating the approval of the rate change was given by line personnel, as well as documentation indicating who actually entered the change and under what authority.
What is proper segregation of duties for authorization to hire and fire employees?
New Hire personnel files as well as Employee Termination files include requisitions initiated and approved by line department personnel.
The risk is that the operational needs of the organization will not be met if line departments are not given the requisite authority to hire, train, evaluate and terminate the employees operating in those departments.
Select a new hire and employee termination personnel file and confirm the existence of a requisition file from the line department requesting and approving the actions undertaken by the HR department.
What approvals are required on time worked by employees before payroll is processed?
Employee time sheets are prepared and approved by appropriate personnel.
The risk is that employees may not be paid accurately.
Review a sample of employee time sheets and confirm such time sheets include an authorized signature by a supervisor.
What happens when an employee’s bank information for EFT is improper and the transfer is not completed?
New Hire documents include a direct deposit form with a voided check from the employee's banking institution.
The risk is that employees may not be paid accurately.
Review a sample of employee direct deposits from the payroll detail package and vouch the account and/or routing numbers agree to the direct deposit form maintained in the New Hire personnel files.
For hourly workers, what is required to verify check in and check out at the beginning and end of shifts?
Employees “check in and check out” via time clock, time card, electronic log-in , fingerprint reader or other method.
The risk is that employees may not be paid accurately.
Review the system reports for a sample of employees in a given period and verify the number of hours paid per the payroll register agrees to the number of hours worked per the login script system report.
How is the imprest payroll checking account funded and reconciled?
Transfers to the payroll account are accompanied by transfer requests approved by the treasurer, and bank reconciliations for the imprest account are performed monthly by staff outside the HR function.
The risk is that misappropriation of company cash may occur if the payroll account is not reconciled.
Select a few months during the fiscal year and review the bank reconciliations for the month, agreeing the account deposits to approved and signed transfer request forms and the wires out to the payroll registers for the period(s).