Question

BOSS Manufacturing Company, which employs about 160 productions and administrative workers have the following payroll procedures:

The factory supervisor interviews and hires all job applicants. The new employee prepares a W-4 form (Employee’s Withholding Exemption Certificate) and gives it to the supervisor. The supervisor writes the hourly rate of pay for the new employee in the corner of the W-4 form and then gives the form to the payroll clerk as notice that a new worker has been hired. The supervisor verbally advises the payroll department of any subsequent pay raises.

A supply of blank time cards is kept in a box near the entrance to the factory. All workers take a time card on Monday morning and fill in their names. The workers are nice people. During the week they record the time they arrive and leave work by punching their time cards in the time clock located near the main entrance to the factory. At the end of the week, the workers drop the time cards in a box near the exit.

A payroll clerk, who is also nice, retrieves the completed time cards from the box on Monday morning. Employees are automatically removed from the payroll master file when they fail to turn in a time card.

The payroll checks are manually signed by the chief accountant and then given to the factory supervisor, who distributes them to the employees. The factory supervisor arranges for delivery of the paychecks to any employee who is absent on payday.

The payroll bank account is reconciled by the chief accountant, who also prepares the various quarterly and annual tax reports.

a.   Identify weaknesses in current procedures and explain the threats that they may allow to occur.

b.   Suggest ways to improve the BOSS Manufacturing Company’s internal controls over hiring and payroll processing. List up to five recommendations.

Answer 1

Answer) -A) Weaknesses and threats that they may allow to occur
1	Weakness: Company’s supervisor determined pay rates of the employees. Threat: There are chances that he may over pay or underpay the employees.
2	Weakness: Company’s supervisor is authorized to hire job applicants Threat: There are chances he may show fake hiring and submit fake W-4 form to payroll clerk
3	Weakness: The readily availability of blank time card Threat: Any employee can misuse blank card if he is late or absent from work
4	Weakness: Employees are verbally informed about payroll raises Threat: This may cause of misleading or fake information which may lead to legal disputes
5	Weakness: Reconciliation of payroll account after signing of paycheck Threat: This is time consuming and less effective activity
6	Weakness: Employees who don’t turn the time card are removed by payroll master Threat: This may lead to removal of employees who may be on vacation or on sick leave
7	Weakness: Company’s supervisor distribute pay checks Threat: The supervisor can keep the checks of fake or fired employees
8	Weakness: Collection of time card Threat: The Irregular /Weekly based time card collection may create fake information and employees

Answer-B) Suggest ways to improve the BOSS Manufacturing Company’s internal controls over hiring and payroll processing
1	Company have to conduct periodical audit to verify correct payroll process
2	Company have to separate duties of supervisor to reduce the risk of fraud
3	Company have to restricted access to record to avoid fraud
4	Company have to adopt better ways to control the misuse of blank time card
5	Company should adopt a controlled and arranged payroll process