A&V Safety, Inc.—Payroll Processing System

(Prepared by Aneesh Varma, Lehigh University)

Supervisors collect and check time cards (including those from interns during the summer).

These are then sent to the payroll department. Based on the employee ID on the time cards, the wage rates are pulled from the reference personnel file. Interns do not receive employee IDs because they are only there for 10 weeks. Their supervisors write their wage rates on the time cards.

The payroll department then prepares the checks and updates the payroll register. A copy of the payroll register is sent to the AP department, which duly updates the AP ledger. A summary report is sent from the payroll department to the general ledger, which shows the distribution of wages across departments and projects. The used time cards are stored in a local file within the payroll department. The checks are then sent from the payroll department to the cash disbursement department, where they are signed and returned to supervisors who distribute them to their respective employees. Copies of the checks also sent to the payroll department, where they are matched to the payroll register and filed locally. The cash disbursements department also sends a verified list of recipients to the AP department, which updates the AP ledger to close out the payable salary accounts. A copy of the list of recipients is also sent from cash disbursements to the general ledger where, after verification from the summary report, the general ledger is updated. Cash disbursements also sends to the bank a copy of the employee list.

Required:

a. Create a data flow diagram of the current system.

b. Create a document flowchart of the existing system.

c. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in SAS 78.

d. Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses you identified.