Question

HARDA Limited employs 650 workers in ten different departments. These workers work in various capacities, including the manufacturing workers, technician, and janitorial workers. Each department has a supervisor who is responsible for supervising departmental activities. In addition to supervising operations, the supervisors of the departments are responsible for recruiting, hiring, and firing workers within their areas of responsibility. The organization attracts casual labour and experiences a 20 to 30 per cent turnover rate in employees per year. Employees clock on and off the job each day to record their attendance on time cards. Each department has its clock machine located in an unattended room away from the main production area. Each week, the supervisors gather the time cards, review them for accuracy, and sign and submit them to the payroll department for processing. Besides, the supervisors submit personnel action forms to reflect newly hired and terminated employees. From these documents, the payroll department signs the paychecks, which are drawn on the general cash account, and sends them to the department supervisors for distribution to the employees. A payroll register is sent to the cash disbursements department where it is filed.

Required:

a) Discuss the risks for payroll fraud in the HARDA Limited payroll system.

b) What controls would you implement to reduce the risks?

Answer 1

a) The risks for payroll fraud in HARDA Limited payroll system are:

• Possibility of biasness by supervisiors- Since the process of preparation of payroll also involves personal views of supervisors, there is huge possibility of personal biasness against the employees.

• Manipulation of data and views-  Since in HARDA Limited, there is huge dependence on man -power rather than taking the help of technology, this creates a gap for payroll fraud to occur as it is easy to manipulate data and views.

• False representation of data-  Since, supervisor is answerable to none, he may represent false data about employees to gain personal benefits.

b)

Controls that I would implement to reduce the risks are-

• Technology based evaluation - Instead of completely relying on supervisors view for the purpose of determining employees productivity, it is better to take the help of technology in addition to the supervisors participation in evaluation of employees.

• Making supervisor answerable-  It is important to make supervisors answerable for his actions, for eg, a proper reasoning accomapanied with proof should be demanded from supervisor for his particular action towards employees.

• Establishment of a board of members- Since, employees payroll is prepared according to his performance as evaluated by supervisors, it is important to set a board of members that specifically discusses the reasonabilty of supervisors decision.