Question

You are the internal audit senior responsible for conducting an assurance engagement of the XYZ Company payroll process. This process has not been audited for three years and, as such, is due in the normal audit cycle. There have been no significant changes since the previous audit, that is, there were no system changes, no reorganization of personnel, and no substantive procedural changes. However, during the last assurance engagement, the internal audit function identified several observations, some of which were considered significant. The significant observations related to: Information pertaining to employees leaving the company was not communicated to the IT department, resulting in extended delays before those employees' systems rights were terminated. Hours paid to nonexempt employees were not supported by approved timesheets. Amounts withheld for employees were not consistent with elections made by employees. The possibility existed that phantom (ghost) employees could be included in the payroll without detection. Payroll management implemented actions to address all significant observations and the internal audit function conducted limited follow-up procedures to validate that the planned actions were completed. This is the first audit since the follow-up procedures were completed. The following is pertinent information to the payroll assurance engagement: "XYZ employs approximately 4,400 employees. Approximately 2,700 of those employees are salaried, the rest are hourly. Employees are paid biweekly. Hourly employees earn pay at straight time for the first 80 hours in a biweekly pay period, time and a half for the next 20 hours in a pay period, and double time for any hours exceeding 100 hours in a pay period. The company utilizes a widely used and market tested payroll package (Pay Right) for processing of all payroll transactions.  

The payroll system interfaces with the general ledger system. XYZ has established a separate payroll imprest account for the processing of payroll checks. Amounts are deposited in this account from the company's general account to cover any checks presented against the imprest account each day. Certain non-payroll items are deducted from the payroll checks, including: Employee loans to cover the cost of extra benefits or computer purchases. Contributions to long-term retirement plans. Contributions to charitable organizations, such as the United Way. Contributions to political action committees (PACs). Payroll expenses and the related payroll accruals are considered material to the company. Based on the above information, perform the following steps to conduct a payroll assurance engagement. D.Document a potential process flow in a detailed flowchart. Make sure that this flowchart identifies key risks and controls and has at least one potential design inadequacy. E.Develop potential key performance indicators for the process you documented in step D. F.Identify which controls are considered key controls. As part of this analysis, document your assumptions regarding the effectiveness of entity-level controls and how such controls affect the payroll process-level controls, if at all. G.Link the key controls to the identified risks. H.Prepare a Risk and Control Matrix to cover the appropriate information from steps C through G. Conclude on the overall design adequacy of the payroll process. I.Create a test plan for gathering evidence regarding the operating effectiveness of all key controls. J.Develop potential test results of testing for all tests conducted. Make sure to identify y at least two observations related to the operating effectiveness of key controls. K.Add the results of steps I and J above to the Risk and Control Matrix. Document your conclusions on the effectiveness of control operation. L.Develop observations based on the engagement results that outline the condition, criteria, cause, and effect for each observation.

Homework Answers

Answer #1

Answer to the question

1. There’s a potential risk of delegating one-person manipulating the recording and authorizing of the payroll accounts.
2. There’s a considerable risk that an employee will not turn-in the time sheet in a timely manner, and so will not be paid.
3. There’s a probability of the occurrence of significant errors that would likely cause the duplication of payment to terminated employees as well as variances on the payment to ghost employees.
4. There’s a possibility a lack of supporting evidences and requirements to grant the benefit associated for each employees.
Risk Assessment

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
CASE 1 You are the internal audit senior responsible for conducting an assurance engagement of the...
CASE 1 You are the internal audit senior responsible for conducting an assurance engagement of the XYZ Company payroll process. This process has not been audited for three years and, as such, is due in the normal audit cycle. There have been no significant changes since the previous audit, that is, there were no system changes, no reorganization of personnel, and no substantive procedural changes. However, during the last assurance engagement, the internal audit function identified several observations, some of...
Johnson Company— Internal Controls Johnson Company Inc. (Johnson Company or the “Company”) is a U.S. public...
Johnson Company— Internal Controls Johnson Company Inc. (Johnson Company or the “Company”) is a U.S. public company that files quarterly and annual reports with the Securities and Exchange Commission (SEC). JOHNSON COMPANY is a leading retail chain operating more than 500 department stores across the continental United States. JOHNSON COMPANY department stores offer customers a variety of nationally advertised products, including cookware, shoes, jewelry, perfume, and other accessories. The Company’s supply chain of products is managed through a single warehouse...
Codger Corp. — Internal Controls Codger Corp. (CC or the “Company”) is a U.S. public company...
Codger Corp. — Internal Controls Codger Corp. (CC or the “Company”) is a U.S. public company that files quarterly andannual reports with the Securities and Exchange Commission (SEC). CC is a leading retail chain operating more than 100 department stores across the continental United States. CC department stores offer customers a variety of nationally advertised products, including clothing, shoes, jewelry, and other accessories. The Company’s supply chain ofproducts is managed through a single warehouse and distribution facility located in Kansas...
Background You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting...
Background You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All of those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas...
You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm...
You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All of those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors....
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation....
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation. case:    W17400 APIGEE: PEOPLE MANAGEMENT PRACTICES AND THE CHALLENGE OF GROWTH Ranjeet Nambudiri, S. Ramnarayan, and Catherine Xavier wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT