Question

For each of the issues described below, explain the organisational policies or procedures that you recommend to prevent each activity from taking place. Also classify each control you recommend as whether it is a preventive, detective or a corrective control.

a. A clerk in the human resources section of a company creates a fictitious employee in the personnel computer file. The business still uses cheques to pay salaries and wages. When the payroll cheque for the fictitious employee is received for distribution, the clerk takes it and cashes it.

Answer 1

Here is my Answer for the above question

This is Preventive Control for reduce the fraud in ficticious employees creation

Authorization to pay an employee by the human resources department protects the business from fraud by reducing and eliminating the possibility of fictitious or terminated employees continuing to be on the payroll. The HR or personnel department should maintain updated employee records at all times that reflect the rate of pay each employee receives and any benefits provided.

Time sheets or timecards should be signed by the employee; then reviewed, approved and signed by a supervisor when applicable. Time off or unpaid absences should be reflected on the appropriate time sheet. Approve overtime before the fact. In addition, an employee should not have access to his time sheet once a supervisor has approved and signed the record for the payroll preparer.

As a further control procedure, the person or persons in charge of preparing payroll who are calculating the compensation owed to each employee should not have authorization to sign time sheets or issue paychecks. During the preparation of payroll final amounts for salaries and wages should be then sent to the department or person in charge of issuing checks to employees and paying payroll taxes.

When feasible, internal control procedures in payroll should require that the person or persons permitted to pay employees and payroll taxes not have unauthorized access to human resource records, time sheets and payroll preparation materials. In small companies in which this is not feasible, the owner or upper management should authorize all checks or designate two trusted employees to have control of authorization, requiring both signatures for authorization.

Detective control for this is Conduct seperate payroll Audit on a timely basis.