You are the partner-in-charge of the external audit of H'ani Diamond Mines Ltd. (HDML), a medium-sized South African diamond mining company with its head office in Johannesburg. Because there has been significant turnover of management during the past year at one of HDML's major mining sites (some of the management have been fired because of irregularities that have been discovered and disputes with the miners on the site that they have been unable to resolve satisfactorily), you are conducting an audit of some of the material application systems at the site.

During your planning of the audit of the payroll system at the site, two of the control objectives you agreed on with the manager responsible for the conduct of the audit were as follows:

a All and only those changes to employee data that meet management's criteria should be made accurately and promptly.

b All and only those requests to hire employees that satisfy management's criteria should be approved.

A review of internal controls has now been conducted. During an examination of working papers prepared for the audit, you note the following controls are supposedly in place at the mine site over the computerized payroll system:

1 Documents that initiate changes to employee data are approved by management before they are entered into the payroll system.

2 A report of all changes made to employee data is printed by the payroll system, and this report is reconciled against management-approved changes by an independent clerk.

3 Batch totals are prepared for all data to be entered into the payroll system by a control clerk who is not authorized to access the system. The control clerk then uses a report of data entered into the system to check that data has been submitted on a timely, complete, nonredundant, and accurate basis.

4 Hours-worked fields and overtime-hours worked fields are validated for reasonableness by the payroll system.

5 Employment applicants are interviewed by the personnel manager and the senior foreman on the site to evaluate whether the applicants have suitable qualifications and experience.

6 Any revision to an existing union agreement or any new union agreement is reviewed by HDML's lawyers.

7 Employees complete sign-in sheets to indicate which personnel are working on site.

Required: Prepare a controls matrix. In the columns, list the exposures that HDML faces if it does not achieve the above two control objectives. List the controls listed here in the rows of your controls matrix. For each exposure you list, indicate with a tick mark in the elements of the matrix whether you believe each control will reduce losses that would be incurred if the exposure were to eventuate. How well do you think the controls listed here reduce expected losses from failure to safeguard assets or maintain data integrity to an acceptable level?