15.3 You have been hired to evaluate the payroll system for the Skip-Rope Manufacturing Company. The company processes its payroll in-house. Use Table 15-1 as a reference to prepare a list of questions to evaluate Skip-Rope?s internal control structure as it pertains to payroll processing for its factory employees. Each question should be phrased so that it can be answered with either a yes or a no; all ?no? answers should indicate potential internal control weaknesses. Include a third column listing the potential problem that could arise if that particular control were not in place. (Table Formatted in Attachment) TABLE 15-1 Threats and Controls in the Payroll/HRM Cycle Activity Threat Controls (first number refers to the corresponding threat) General issues throughout entire HRM/payroll cycle ? 1. Inaccurate or invalid master data ? 2. Unauthorized disclosure of sensitive information ? 3. Loss or destruction of data ? 4. Hiring unqualified or larcenous employees ? 5. Violations of employment laws ? 1.1 Data processing integrity controls ? 1.2 Restriction of access to master data ? 1.3 Review of all changes to master data ? 2.1 Access controls ? 2.2 Encryption ? 3.1 Backup and disaster recovery procedures ? 4.1 Sound hiring procedures, including verification of job applicants? credentials, skills, references, and employment history ? 4.2 Criminal background investigation checks of all applicants for finance-related positions ? 5.1 Thorough documentation of hiring, performance evaluation, and dismissal procedures ? 5.2 Continuing education on changes in employment laws Update payroll master data ? 6. Unauthorized changes to payroll master data ? 7. Inaccurate updating of payroll master data ? 6.1 Segregation of duties: HRM department updates master data, but only payroll department issues paychecks ? 6.2 Access controls ? 7.1 Data processing integrity controls ? 7.2 Regular review of all changes to master payroll data Validate time and attendance data ? 8. Inaccurate time and attendance data ? 8.1 Source data automation for data capture ? 8.2 Biometric authentication ? 8.3 Segregation of duties (reconciliation of job-time tickets to time cards) ? 8.4 Supervisory review Prepare payroll ? 9. Errors in processing payroll ? 9.1 Data processing integrity controls: batch totals, cross-footing of the payroll register, use of a payroll clearing account and a zero-balance check ? 9.2 Supervisory review of payroll register and other reports ? 9.3 Issuing earnings statements to employees ? 9.4 Review of IRS guidelines to ensure proper classification of workers as either employees or independent contractors Disburse payroll ? 10. Theft or fraudulent distribution of paychecks ? 10.1 Restriction of physical access to blank payroll checks and the check signature machine ? 10.2 Restriction of access to the EFT system ? 10.3 Prenumbering and periodically accounting for all payroll checks and review of all EFT direct deposit transactions ? 10.4 Require proper supporting documentation for all paychecks ? 10.5 Use of a separate checking account for payroll, maintained as an imprest fund ? 10.6 Segregation of duties (cashier versus accounts payable; check distribution from hiring/firing; independent reconciliation of the payroll checking account) ? 10.7 Restriction of access to payroll master database ? 10.8 Verification of identity of all employees receiving paychecks ? 10.9 Redepositing unclaimed paychecks and investigating cause Disburse payroll taxes and miscellaneous deductions ? 11. Failure to make required payments ? 12. Untimely payments ? 13. Inaccurate payments ? 11.1 Configuration of system to make required payments using current instructions from IRS (Publication Circular E) ? 12.1 Same as 11.1 ? 13.1 Processing integrity controls ? 13.2 Supervisory review of reports ? 13.3 Employee review of earnings statement

15.3 You have been hired to evaluate the payroll system for the Skip-Rope Manufacturing Company. The company processes its payroll in-house. Use Table 15-1 as a reference to prepare a list of questions to evaluate Skip-Rope's internal control structure as it pertains to payroll processing for its factory employees. Each question should be phrased so that it can be answered with either a yes or a no; all \"no\" answers should indicate potential internal control weaknesses. Include a third column listing the potential problem that could arise if that particular control were not in place. TABLE 15-1 Threats and Controls in the Payroll/HRM Cycle Activity Threat Controls (first number refers to the corresponding threat) 1.1 Data processing integrity controls 1. Inaccurate or invalid master data 1.2 Restriction of access to master data 2. Unauthorized disclosure of sensitive information 1.3 Review of all changes to master data 2.1 Access controls 3. Loss or destruction of data 2.2 Encryption 4. Hiring unqualified or larcenous employees 3.1 Backup and disaster recovery procedures 5. Violations of employment laws 4.1 Sound hiring procedures, including verification of job applicants' credentials, skills, references, and employment history 4.2 Criminal background investigation checks of all applicants for finance-related positions 5.1 Thorough documentation of hiring, performance evaluation, and dismissal procedures General issues throughout entire HRM/payroll cycle 5.2 Continuing education on changes in employment Activity Controls (first number refers to the corresponding threat) Threat laws 6. Unauthorized changes to payroll master data Disburse payroll 9. Errors in processing payroll 10. Theft or fraudulent distribution of paychecks 7.1 Data processing integrity controls 7.2 Regular review of all changes to master payroll data 8.1 Source data automation for data capture 8.2 Biometric authentication 8.3 Segregation of duties (reconciliation of job-time tickets to time cards) 8.4 Supervisory review 9.1 Data processing integrity controls: batch totals, cross-footing of the payroll register, use of a payroll clearing account and a zero-balance check 9.2 Supervisory review of payroll register and other reports 9.3 Issuing earnings statements to employees Prepare payroll 8. Inaccurate time and attendance data 6.2 Access controls Validate time and attendance data 7. Inaccurate updating of payroll master data 6.1 Segregation of duties: HRM department updates master data, but only payroll department issues paychecks Update payroll master data 9.4 Review of IRS guidelines to ensure proper classification of workers as either employees or independent contractors 10.1 Restriction of physical access to blank payroll checks and the check signature machine 10.2 Restriction of access to the EFT system 10.3 Prenumbering and periodically accounting for all payroll checks and review of all EFT direct deposit Activity Controls (first number refers to the corresponding threat) Threat transactions 10.4 Require proper supporting documentation for all paychecks 10.5 Use of a separate checking account for payroll, maintained as an imprest fund 10.6 Segregation of duties (cashier versus accounts payable; check distribution from hiring/firing; independent reconciliation of the payroll checking account) 10.7 Restriction of access to payroll master database 10.8 Verification of identity of all employees receiving paychecks 10.9 Redepositing unclaimed paychecks and investigating cause 11.1 Configuration of system to make required payments using current instructions from IRS (Publication Circular E) Disburse payroll taxes and miscellaneous deductions 11. Failure to make required payments 12. Untimely payments 12.1 Same as 11.1 13.1 Processing integrity controls 13. Inaccurate payments 13.2 Supervisory review of reports 13.3 Employee review of earnings statement