Question

The overseeing surveyor did not advise the HR department when an employee resigned. All employees are paid by direct credit to their bank accounts unless any variations are notified to the HR department. In this particular case the employee’s salary continued to be paid into her bank account for a further two months. Discuss a control that should have prevented the situation and the audit risk that exists if the situation is not discovered. Investigate and discuss a substantive audit procedure that would discover each of the above problems. State the audit objective that each procedure meets. (

Answer 1

The control that could have controlled this situation is by linking the compensation system with the exit system. Any employee, whose exit is getting punched, his last day of working must get updated in the compensation system. The payroll generation for the employee must get deactivated post his last day of working. This way, the payroll release can be withheld for an inactive employee.

The audit risks associated with the current situation are:

• Payroll Fraud
• Ghost employee risk

Any audit conducted to check the effectiveness of the payroll system or employee separation will be able to detect this situation.

• The audit objective to check payroll effectiveness will study the current payroll process and investigate the payroll records to check if any kind of payroll fraud is happening in the organization.
• The employee records may be audited to check if payroll and benefits are credited to any inactive employee