One area that we haven't looked at yet is payroll. Can you get the documentation from Karina for payroll and then complete a "bridge work paper" like you did for the Revenue and Purchasing cycles? As you review the flowchart, enter circled S- and W-symbols for strengths and weaknesses to cross-reference to your work papers.
Prepare a bridge working paper (ICP-1) describing the strengths and weaknesses identified by number on the payroll flowchart. For each strength, describe one or more test of controls audit procedures that might be used to gather evidence on the control. For each weakness indicate the effect on year-end substantive audit procedures.
Substantive Payroll Procedures (L-4) I don't suggest doing any detail testing on payroll. Because there has been little turnover, we can use analytic procedures to get the comfort necessary. Last year's numbers should be close to the current year. Also, the internal auditors have been watching payroll closely.
I've attached a copy of the year end payroll register from the third party payroll processing company. Please tie in the ending number (earnings per year) to the trial balance. Compare current year numbers to last years to see if they are reasonable. You may want to compare key executives' salaries with those authorized in the Board minutes to make sure that they are reasonable.
Don't forget to accrue for wages payable and other payroll accruals for the last day of December (Apollo's last payday was December 28). You won't need to accrue for State and Federal Unemployment as they are applied only to the first $7,000 of income.
From: "Karina Ramirez"
Subject: Payroll Info
Here is the information you requested on our payroll processing:
1. All hourly employees (clerical and warehouse personnel) are paid biweekly (every 10 workdays) based on hours recorded on time cards maintained by a time clock machine. The time cards are approved by the supervisors. The supervisors take the approved time cards to the payroll department. Salaried employees also are paid biweekly based on a salary schedule approved by the finance committee of the board of directors.
2. The personnel department must approve all new hires, terminations, and hourly rate changes. Forms for each of these actions also are approved by appropriate supervisors and are kept in the personnel office. The personnel clerks notify payroll of the changes by a "payroll change" document.
3. The payroll department maintains the individual employees' payroll records and the forms signed by employees for all pay deductions.
4. Every two weeks, Martha, a clerk in the payroll department, prepares the payroll register (multi copy) from the time cards and the information of the individual payroll records. Martha uses a "write-it-once" system that also prepares a form indicating gross pay, each deduction, net pay, and year-to-date totals. Martha calls this form the "take-home sheet." Willie, a second clerk, checks Martha's work and recalculates the gross pay and all deductions.
5. Two copies of the payroll register and the take-home sheets are sent to the accounts payable department where they are used to prepare a separate voucher for each payroll take-home sheet. The checks then are prepared. Both copies of the payroll register, the voucher, the checks, and the accompanying take-home sheets are sent to the treasurer's office.
6. Mary Costain, the treasurer, reviews the payroll register and the take-home sheets and compares them to the checks and signs the checks. Her secretary takes the hourly employees' checks (and accompanying take-home sheets) to their supervisors for distribution. The salaried employees pick up their checks from the treasurer's office. One copy of the payroll register representing paid checks is filed in the treasurer's office. The second copy and the vouchers are marked PAID and returned to accounts payable.
7. The supervisors distribute the checks every other Friday, holding those not claimed until the employee returns to work.