Question

Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities:
€¢Shady Oaks Centre, a private treatment centre
€¢Gardens Nursing Home Ltd., a private nursing home
€¢Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects
Year end for all HCHG entities is June 30.
You are an audit senior on the Shady Oaks Hospital engagement. Your initial review of the business has highlighted the following significant risks.
1. Payroll expense. Shady Oaks employs, in addition to its full-time staff, a significant number of casual professional, cleaning, and administrative staff. Overtime is often worked on weekends and night shifts due to a shortage of staff. Payment at overtime rates for standard weekend and night shifts has been a common occurrence.
2. Accounts payable. Shady Oaks also has a large number of suppliers for various medical supplies. Paying the supplier twice for the same purchase has been a continuing problem.
Required
For each of the accounts (1 and 2 above) identified to be a significant risk:
(a) Determine the key assertion at risk
(b) Describe a practical preventive internal control that would directly address the risk
(c) Describe a practical detective internal control that Shady Oaks could implement in relation to the risk.
You may wish to present your answer in the form of a table, as follows.

Answer 1

Account at risk	a. Assertion at risk	b. Preventive internal control	c. Detective internal control
A. Payroll expense: overpayment of overtime	Occurrence, accuracy	Use different codes for standard shifts and overtime hours; require special authorization of overtime payments	Review of overtime payment reports
B. Accounts payable: payments made twice to the same supplier	occurrence	Require supplier and invoice code to be input at time of processing payment – system to reject duplicates; Cancel documents used to support payment to prevent reuse	Reconciliation of supplier accounts each month, detect debit balances or accounts with more payments than invoices

Account at risk

a. Assertion at risk

b. Preventive internal control

c. Detective internal control