As part of the audit of Beach Land Construction, you are assigned to review and test the payroll transactions. Beach Land Construction is a privately owned company, which has about 30 full-time employees, and another 30 to 60 part-time employees, depending on the company’s needs. All employees, job foreman, and other workers are paid hourly wages. Your procedures show the payroll register was properly footed, totaled, and posted. The company keeps a separate bank account for payroll transactions, which normally carries a balance between $2,000 and $10,000. Based on your conversations with the owner and bookkeeper, you determine the following:

1. Any new employee is interviewed by and hired by the owner of the company. Upon being hired, the new employee must complete appropriate IRS and other withholding forms. This information is given to the bookkeeper.

2. At the end of every day, the job foreman phones the owner to report the number of hours worked by each employee on the job. The owner then reports this information to the bookkeeper.

3. Each Friday at the end of the day, the bookkeeper prepares payroll based on the number of hours reported by the owner for each employee, the employee’s wage rate, and withholdings. The bookkeeper then prepares payroll checks.

4. The owner gives checks a cursory scan and signs the checks at the end of the day on Friday. On Monday morning, the owner has a meeting with all job foremen. Payroll checks are given to each job foreman who then distributes the checks to employees every Monday.

5. At the end of the month, the bookkeeper performs a monthly bank reconciliation on the payroll bank account, and writes and posts any needed adjusting journal entries.

Required

a. Identify any significant deficiencies or material weaknesses in the payroll procedures used in the payroll system for Beach Land Construction.

b. For each significant deficiency or material weakness you identify, recommend an improvement to correct the deficiency.