Question

The following is the description of the payroll system of a manufacturing company:
Employees of the company use a time clock in an unsupervised area to record their time on the job.
The site supervisor tries to monitor the recording process. However, due to other duties, the
supervisor is often distracted. The site supervisor collects the time cards from employees every Friday.
The supervisor then reviews and approves the time cards and send them to payroll clerk.
The payroll clerk uses a stand-alone workstation to record the employees’ earnings in the employee
records and print two hard copies of payroll register. One copy of the payroll register is sent to the
accounting department and the other copy is filed with the time cards in the payroll department.
The accounting clerk receives the payroll register, reviews it for accuracy, and use the department
computer to record the transaction by posting to salary expenses, cash and various withholding
accounts at general ledger and subsidiary ledgers. The clerks then prints the hard copy of pay cheques,
which are written on the general cash account.
The accounting clerk signs the pay cheques and sends them to the site supervisor who distribute them
to the employees. The clerk then files the payroll register in the accounting department.
Discuss the uncontrolled risks associated with the company’s payroll system

Answer 1

The first uncontrolled risk associated with the company’s payroll system is that with regards to fraudulent activity. It should be noted that employees of the company use a time clock in an unsupervised area to record their time on the job. As such there is a very high chance that employees can fudge or cheat on their time entry and by doing this they can easily inflate the numbers of hour worked by them in order to wrongly increase their payout.

Secondly the workstation being used by the payroll clerk is a stand-alone workstation and so any errors made by the clerk while recording earnings of the employees will go unnoticed.

Thirdly before checks are made by the accounting department the entries made by the payroll clerk should be tallied and matched by the supervisor. This is not being done and so the uncontrolled risk of error and/or data manipulation by the clerk gets highlighted.

These uncontrollable risks can cause financial damage to the company as its cash resources that are used for payment to workers will become vulnerable to unintentional errors as well as intentional error of the payroll clerk. Secondly it will also become vulnerable to the fraud by employees who are inputting wrong and false number with regards to their working hours. This may lead to shortage of funds in the long run for the company and will weaken the company’s overall payroll structure.