Question

Respond to the following in a minimum of 175 words:

An audit program relates to the inventory/warehousing and payroll cycles and accounts.  

Discuss tests of controls and substantive tests of transactions for the payroll and personnel cycle. How does this apply to your chosen organization?

Answer 1

Test of Controls:-

“The main issue of internal controls over payroll and personnel cycle is the potential fraud of unauthorized payments to fictitious employers or the payment of wages or salaries without work performed”. The types of fraud that can be found are:

1). Non-existent Employees– Reviewing certain transactions recorded in the payroll journal,to determine if employees were actually employed during the payroll period.

2).Terminated Employees – Looking at several files of each terminated employee of the current pay period, to determine if each person received their check and were paid accordingly.

3). Fraudulent Hours– Reconciling the total hours paid according to the payroll record with an independent record of the hours worked.

4). Unclaimed Wages– Investigating unclaimed wages to determine if the wages are considered an unclaimed check.

Substantive Tests Of Transactions:-

Auditing procedures, sampling sizes, items to select, and timing is what we will use in designing substantive testing of transactions for the payroll and personnel cycle.

1). Review the payroll summary, payroll journal and general ledger for unusual items and check to the supporting documents.

2). Reconcile the total disbursement in the payroll journal with the payments on the bank statement and cash disbursement journal.

3). Select transactions from the payroll journal and check their classification with chart of accounts

Time-keeping and payroll preparation are important in the audit of payroll because they directly affect payroll expense for each period. Adequate controls are necessary to prevent misstatements. Preparing time records for the employees, summarizing and calculating gross pay,deductions, and net pay, and payment of payroll will help in using timekeeping for the process of making the choosen organisation a better organisation.