When employees arrive for work at Harlan Manufacturing, they punch their time cards at a time clock in an unsupervised area. Mary, the time-keeping clerk, tries to keep track of the employees but is often distracted by other things. Every Friday, she submits the time cards to Marsha, the payroll clerk.Marsha copies all time cards and files the copies in the employees’ folders. She uses employee wage records and tax tables to calculate the net pay for each employee. She sends a copy of the payroll register to the accounts payable department and files a copy in the payroll department. She updates the employee records with the earnings and prepares the payroll summary and sends it to the cash disbursements department along with the paychecks.After receiving the payroll summary, John, an accounts payable clerk, authorizes the cash disbursements department to prepare paychecks. John then updates the cash disbursements journal. The treasurer signs the paychecks and gives them to the supervisors, who distribute them to the employees. Finally, both the accounts payable and cash disbursements departments send a summary of transactions to the general ledger department.a. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the SAS 78/COSO control model.b. Make recommendations for improving the system.
When employees arrive for work at Harlan Manufacturing, they punch their time cards at a time clock in an unsupervised area. Mary, the time-keeping clerk, tries to keep track of the employees but is often distracted by other things. Every Friday, she submits the time cards to Marsha, the payroll clerk.
Marsha copies all time cards and files the copies in the employees’ folders. She uses employee wage records and tax tables to calculate the net pay for each employee. She sends a copy of the payroll register to the accounts payable department and files a copy in the payroll department. She updates the employee records with the earnings and prepares the payroll summary and sends it to the cash disbursements department along with the paychecks.
After receiving the payroll summary, John, an accounts payable clerk, authorizes the cash disbursements department to prepare paychecks. John then updates the cash disbursements journal. The treasurer signs the paychecks and gives them to the supervisors, who distribute them to the employees. Finally, both the accounts payable and cash disbursements departments send a summary of transactions to the general ledger department.
a. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the SAS 78/COSO control model.
b. Make recommendations for improving the system.
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