TASK
Following are 10 key internal controls in the payroll cycle for Gilman Stores, Inc.
Key Controls
1. To input hours worked, payroll accounting personnel input the employee’s identification number. The system does not allow input of hours worked for invalid employee numbers.
2. The system generates a listing by employee name of payments processed. Department
heads review these listings to ensure that each employee actually worked during the
pay period.
3. On a test basis, payroll accounting personnel obtain a listing of pay rates and with- holding information for a sample of employees from human resources to recalculate gross and net pay.
4. The system automatically rejects processing an employee’s pay if inputted hours exceed 160 hours for a 2-week pay period.
5. The payroll application is programmed so that only human resource personnel are
able to add new employees to the employee master files.
6. Input menus distinguish executive payroll, administrative payroll, and factory payroll.
7. The system automatically computes pay at time and a half once hours worked exceed
80 in a 2-week pay period.
8. The system accumulates totals each pay period of employee checks processed and
debits the payroll expense general ledger account for the total amount.
9. Each pay period, payroll accounting clerks compare the number of electronic time
records submitted by department heads for processing with the number of payments
issued by the system to ensure that each time record has a corresponding payment.
10. For factory personnel, the payroll system matches employee ID numbers with ID
numbers listed on job costing records as direct labor per the cost accounting system.
The purpose of the reconciliation is to verify that the amount paid to each employee
matches the amount charged to production during the time period.
For each control:
a. Identify whether the control is an automated application control (AC) a manual control done by Gilman employees (MC), or a manual control with an automated component (MAC).
b. Identify the transaction-related audit objective that is affected by the control.
c. Identify which controls, if tested within the last two prior-year audits, would not have to be retested in the current year, assuming there are effective IT general controls and no changes to the noted control have been made since auditor testing was completed.
