Following are 10 key internal controls in the payroll cycle for Gilman Stores, Inc.

Key Controls

• 1. To input hours worked, payroll accounting personnel input the employees Social Security number. The system does not allow input of hours worked for invalid employee numbers.
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• 2. The payroll application is programmed so that only human resource personnel are able to add employee names to the employee master files.
• 3. Input menus distinguish executive payroll, administrative payroll, and factory payroll.
• 4. The system automatically computes pay at time and a half once hours worked exceed 80 in a 2-week pay period.
• 5. The system accumulates totals each pay period of employee checks processed and debits the payroll expense general ledger account for the total amount.
• 6. Each pay period, payroll accounting clerks count the number of time cards submitted by department heads for processing and compare that total with the number of checks printed by the system to ensure that each time card has a check.
• 7. For factory personnel, the payroll system matches employee ID numbers with ID numbers listed on job costing tickets as direct labor per the cost accounting system. The purpose of the reconciliation is to verify that the amount paid to each employee matches the amount charged to production during the time period.
• 8. The system generates a listing by employee name of checks processed. Department heads review these listings to ensure that each employee actually worked during the pay period.
• 9. On a test basis, payroll accounting personnel obtain a listing of pay rates and withholding information for a sample of employees from human resources to recalculate gross and net pay.
• 10. The system automatically rejects processing an employees pay if inputted hours exceed 160 hours for a 2-weRequired

  For each control:

• a. Identify whether the control is an automated application control (AC) or a manual control done by Gilman employees (MC).
• b. Identify the transaction-related audit objective that is affected by the control.
• c. Identify which controls, if tested within the last two prior year audits, would not have to be retested in the current year, assuming there are effective IT general controls and no changes to the noted control have been made since auditor testing was completed.