Arlington Industries manufactures and sells engine parts for large industrial equipment. The company employs over 1,000 workers for three shifts, and most employees work overtime when necessary. The figure below, depicts the procedures followed to process payroll. Additional information about payroll procedures follows:

The HRM department determines the wage rates of all employees. The process begins when a form authorizing the addition of a new employee to the payroll master file is sent to the payroll coordinator for review and approval. Once the information about the new employee is entered in the system, the computer automatically calculates the overtime and shift differential rates for the employee.

A local accounting firm provides Arlington with monthly payroll tax updates, which are used to modify the tax rates.

Employees record time worked on time cards. Every Monday morning the previous weeks time cards are collected from a bin next to the time clock, and new time cards are left for employees to use. The payroll department manager reviews the time cards to ensure that hours are correctly totaled; the system automatically determines if overtime has been worked or a shift differential is required.

The payroll department manager performs all the other activities depicted in the figure below.

The system automatically assigns a sequential number to each access. After the checks are printed, the payroll department manager uses an automatic check signing machine to sign the checks. The signature plate is kept locked in a safe. After the checks have been signed, the payroll manager distributes the paychecks to all first-shift employees. Paychecks for the other two shifts are given to the shift supervisor for distribution.

The payroll master file is backed up weekly, after payroll processing is finished.

Required:

a. Identify and describe five different areas in Arlingtons payroll processing system where controls are inadequate.

b. Identify and describe two different areas in Arlingtons payroll processing system where controls are satisfactory.

Personnel prepares original payroll information Authorization form Post payroll information Authorization form Payroll lox service Monthly update Post payroll information Calculate overtime and shift differential rates HR department Update payroll master file Payroll master file Employees punch time clock Review time cards for accuracy Backup Prepare employee payroll No Employees' time cards Review weekly payroll register on monitor Does payroll register match time cords? Database backup Yes Process payroll checks Payroll register HR department Prepare journal entry Paychecks Journal voucher General ledger Distribute to employees Personnel prepares original payroll information Authorization form Post payroll information Authorization form Payroll lox service Monthly update Post payroll information Calculate overtime and shift differential rates HR department Update payroll master file Payroll master file Employees punch time clock Review time cards for accuracy Backup Prepare employee payroll No Employees' time cards Review weekly payroll register on monitor Does payroll register match time cords? Database backup Yes Process payroll checks Payroll register HR department Prepare journal entry Paychecks Journal voucher General ledger Distribute to employees