A regional supermarket chain has 12 stores across the midlands. Due to the nature of their business staff costs are a significant item on their income statement. Currently each store pays its staff £8 per hour based on the weekly time sheets they fill in. These time sheets are signed off by the store managers and sent to the central finance team who process the monthly staff payments. A central finance officer prepares two payment runs each month, one for the hourly paid staff, the other for the salaried staff including the store managers and the central finance and other central department staff. Both payment runs are automatically checked against a database of active staff that is managed by the finance officer responsible for the payment run. This payment run is then signed off by the finance director, although due to the size of the report and the other controls already in place this is not a detailed review. All new starter and leaver documentation is held separately to the finance team by the senior HR manager, these include employment contracts for new starters and signed leaver forms for staff that have left. There is, however, currently no systems in place to check the details held by the finance team against the details held by the HR manager. For the year end audit the engagement leader would like to include both tests of details and tests of controls in the audit plan for staff costs. a) Identify any weaknesses in the above internal controls over the payment of staff, suggest possible consequences of these poor controls, and suggest possible improvements to the process. b) Discuss 3 limitations of internal controls in general c) In the above scenario suggest and clearly explain one test of detail that the audit team could implement to ensure that staff costs are not overstated in the annual accounts.
A regional supermarket chain has 12 stores across the midlands. Due to the nature of their business staff costs are a significant item on their income statement.
Currently each store pays its staff £8 per hour based on the weekly time sheets they fill in. These time sheets are signed off by the store managers and sent to the central finance team who process the monthly staff payments. A central finance officer prepares two payment runs each month, one for the hourly paid staff, the other for the salaried staff including the store managers and the central finance and other central department staff. Both payment runs are automatically checked against a database of active staff that is managed by the finance officer responsible for the payment run. This payment run is then signed off by the finance director, although due to the size of the report and the other controls already in place this is not a detailed review.
All new starter and leaver documentation is held separately to the finance team by the senior HR manager, these include employment contracts for new starters and signed leaver forms for staff that have left. There is, however, currently no systems in place to check the details held by the finance team against the details held by the HR manager.
For the year end audit the engagement leader would like to include both tests of details and tests of controls in the audit plan for staff costs.
a) Identify any weaknesses in the above internal controls over the payment of staff, suggest possible consequences of these poor controls, and suggest possible improvements to the process.
b) Discuss 3 limitations of internal controls in general
c) In the above scenario suggest and clearly explain one test of detail that the audit team could implement to ensure that staff costs are not overstated in the annual accounts.
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