Question 220 Francisco
Control Deiciency Control Recommendation Marks
Distribution depot employees are paid by bank transfer on a monthly basis. The
senior payroll manager reviews the list of bank payments and agrees this to the
payroll records.
As the bank payments to employees are not supervised and authorized this
could lead to loss or high payments to employees.
Payment by bank must be authorized by senior
representative to reconcile the payments and
accuracy of wages. This can lead to prevent fraud in
payroll of employees.
Lack of segregation of Duty
The senior payroll manager reviews the list of bank payments and agrees this to
the payroll records. If any discrepancies are noted, these are investigated by the
senior payroll manager who then makes the required adjustment in the payroll
records.
Since all the payroll related tasks are being supervised by senior payroll
manager, it can lead to human errors or fraud in payroll.
Tasks should be reviewed and done by different
employees by segregating the duties to encourage
independence of employees and to prevent human
errors.
Authorizing of orders above $ 3000
A multipart purchase order is then generated. The purchasing manager
authorizes all orders below $3,000 and the purchasing director authorizes
orders of $3,000 and above.
Since $3000 is a material amount purchase orders are not being authorized
below these amount there is a risk that manager will order unwanted goods
hence lead in overall loss for the company.
All purchase orders must be authorized by a
relevant authority to ensure that goods are being
ordered for the best use on right time to increase
the eficient production of the company.
0
Missing lease Documents
Earlier in the year, members of the company’s internal audit department
undertook a review of the lease agreements and ownership documents but were
unable to locate a number of the relevant documents.
This indicates that documents of company are being misplaced and relevant
documents are not suficient appropriate audit evidence to conclude a opinion
on lease agreements. This indicates control risk of the company.
All important documents must be placed at a high
security area and must be backed up in systems to
prevent any disaster.
Documents must be segregated as permanent iles
which relates to long term documents and
temporary iles which relates to current year
transactions.
2
Lack of segregation of duty
The classiication is made with reference to formal company policy established
by the inance director, who sample checks that the capital or revenue
expenditure allocation has been correctly applied and then evidences this
review by way of signature.
This indicates that all tasks related to depots are being done by inance director
which can cause human errors or fraud leading to overall loss for the business.
Task can be delegated to relevant employees with
suitable skills to ensure that no repletion of work
and duplication in work occurs.
Delegating tasks can also encourage employees to
work independently.
1
Purchase invoices are matched only to purchase orders before authorization and
there is no evidence invoices are matched to goods received notes (GRNs). This
increases the risk that Francisco Co may pay for goods which were not received,
leading to overstatement of expenses and payables.
Before authorization and payment, all purchase
invoices should be matched to the related purchase
order and goods received note to conirm the goods
were properly ordered and received.
Direct control Test of control Marks
Identity card for employees
Each employee has a staff identity card which they use to sign in and out of the
depot at the beginning and end of each shift to record their hours worked, and
this process is supervised by security staff as well as CCTV cameras.
As the process of sign in and sign out is being reviewed by security staff and
CCTV cameras, this can help to ensure that relevant staff with authority enters.
Auditor should check whether the CCTV Cameras
are being recorded and being supervised by
security. Also, whether the security does not have
any close ties with employees.
1.5
The hours worked per employee are automatically transferred from the signing-
in system into the payroll system. The hourly wage rate is pre-set, and the payroll
system automatically calculates the gross and net pay along with relevant
statutory deductions and produces pay slips which are immediately emailed to
employees.
This indicates that the system is calculating the wages automatically with any
fraud and errors.
Auditor should recalculate the total amount to be
paid to their employees and cast it to the payroll
system and identify any unusual trends.
Additionally auditor can check the pay rates for the
samples of employees to the agreement.
Restriction to payroll system
Access to employees' standing data in the payroll system is restricted to payroll
managers through the use of a password, which the system requires to be
changed on a monthly basis.
As the password is being changed on a monthly basis there can be very little
chance that unauthorized sign – in takes place.
Auditor can check previous passwords to ensure
that they are being updated on a timely basis and
ensure that passwords does not contain any
personal information of managers to become easy
to predict by others.
