Sinclair’s Chair Company—Payroll Systems

(Prepared by Sam Succop, Lehigh University)

Sinclair’s Chair Company (SCC) was established in 1951 as a family-run manufacturer of plastic chairs, largely distributed to small universities and colleges. It has three manufacturing plants, located in Bethlehem, Pennsylvania;

Pittsburgh, Pennsylvania; and Jersey City, New Jersey.

Payroll Processing System All three manufacturing plants’ payrolls are processed biweekly through the same system.
The payroll clerk in SCC’s main plant in Bethlehem receives the time cards from the production department. The payroll clerk enters the information from these time cards into the employee records and then adds the employee hours to a payroll register reflecting employee pay rates, necessary deductions, and job classifications. A copy of the payroll register, along with the time cards, is filed in the payroll department, and a copy is sent to the AP department. The payroll clerk then prepares the employee paychecks and sends them to the cash disbursements department.
The cash disbursements clerk signs the checks and distributes them to the employees.
The AP department prepares a cash disbursements voucher. A copy of the disbursements voucher and a copy of the payroll register are sent to the cash disbursements department. The cash disbursements clerk posts to the check register and updates the general ledger. The clerk then writes a check for the entire payroll and deposits it in the imprest account. A copy of the check along with the disbursement voucher and the payroll register are sent back to the accounts payable department and filed.
Required:

a. Create a data flow diagram of the payroll systems.

b. Create a document flowchart of the payroll systems.

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.