As a recently hired internal auditor for the Emerson Department Store (which has approximately 500 employees on its payroll), you are currently reviewing the store’s procedures for preparing and distributing the weekly payroll. These procedures are as follows.

• Each Monday morning the managers of the various departments (e.g., the women’s clothing department, the toy department, and the home appliances department) turn in their employees’ time cards for the previous week to the accountant (Morris Smith).

• Morris then accumulates the total hours worked by each employee and submits this information to the store’s computer center to process the weekly payroll.

• The computer center prepares a transaction tape of employees’ hours worked and then processes this tape with the employees’ payroll master tape file (containing such things as each employee’s social security number, exemptions claimed, hourly wage rate, year-to-date gross wages, FICA taxes withheld, and union dues deducted).

• The computer prints out a payroll register indicating each employee’s gross wages, deductions, and net pay for the payroll period.

• The payroll register is then turned over to Morris, who, with help from the secretaries, places the correct amount of currency in each employee’s pay envelope.

• The pay envelopes are provided to the department managers for distribution to their employees on Monday afternoon. To date, you have been unsuccessful in persuading the store’s management to use checks rather than currency for paying the employees. Most managers that you have talked with argue that the employees prefer to receive cash in their weekly pay envelopes so that they do not have to bother going to the bank to cash their checks.

Requirements:

1. Assume that the store’s management refuses to change its current system of paying the employees with cash. Identify some control procedures that could strengthen the store’s current payroll preparation and distribution system.

2. Now assume that the store’s management is willing to consider other options for paying employees. What alternatives would you suggest?