Oliver’s employs both full- time and part- time staff who work in the kitchen and in the front of the house in various positions. Full-time employees work a standard 37.5 hour work week. When new employees are hired, a completed hiring package, approved by the restaurant manager, is sent to the payroll manager. The payroll manager sets up the new employee in the payroll master file. The bi-weekly salary is determined by the restaurant manager at the time of hiring, using the salary ranges approved by Senior Management.

When the restaurants become busier than expected, employees may be asked to work overtime. The restaurant manager must approve overtime if the overtime worked exceeds 8 hours in a week. Any overtime worked is recorded on a tracking sheet. The tracking sheet is scanned and e-mailed to the payroll clerks at the end of each week. The payroll clerks enters all overtime worked into the payroll system. Once entered, the system calculates the gross pay, the required withholding taxes and the related deductions. The payroll clerks do not check the overtime calculations because the amounts are calculated by the payroll system.

Once a year, employees are given performance raises. Payroll clerks update the payroll master file with the new pay rates. Employees are paid bi-weekly using electronic funds transfer for their standard payroll and for any overtime worked during the period. An ‘overtime report’ that both summarizes the total overtime worked and provides hours and details by employee is prepared monthly by the payroll clerks and e-mailed to each restaurant manager for authorization. The restaurant manager only needs to respond to the payroll clerk when errors are found. Restaurant managers are supposed to delegate the authority to approve overtime to the assistant managers when they are away on holidays, but this does not always happen. When the payroll is ready to be paid, the controller reviews the summary payroll and compares this to the amount to be paid. If the two amounts agree, the bank transfer is initiated. After each payday, a payroll register is produced.

Oliver’s maintains a chequing accounts for each restaurant and it encourages all supplier payments to be made by cheque. Restaurant managers have cheque signing authority. All restaurant bank accounts should be reconciled monthly, but occasionally the accounting staff fall behind. The company also maintains an imprest payroll bank. This account is reconciled quarterly.

It is now March, 2020 and you are working to complete the of Oliver’s when a global pandemic hits. Oliver’s restaurants are forced to close and you learn that management has applied for government assistance, part of which is a forgivable loan. You also learn that Oliver is being sued because in November, 2019, a patron had a severe allergic reaction after dining on one of the restaurants. The lawsuit is material but the outcome is not determinable.

In respect of the payroll system of Oliver Pub Co: 

(i) Identify and explain SIX deficiencies;
(ii) Recommend a control to address each of these deficiencies; and
(iii) Describe a test of control the auditor should perform to assess if each of these controls is operating effectively.

Process Deficiency	Recommendation to fix Deficiency	Test of the Control