Lakeview Builders is a construction company (building houses, offices, and hotels) employing a large number of workers on various construction sites. The internal audit department of Lakeview Builders is currently reviewing cash wages systems within the company. The following information is available concerning the wages systems:

(a) Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of each days work, each worker enters their unique employee number on a keypad.

(b) Workers on each site are controlled by a foreman. The foreman has a record of all employee numbers and can issue temporary numbers for new employees.

(c) Any overtime is calculated by the computerized wages system and added to the standard pay.

(d) The two staff in the wages department make amendments to the computerized wages system in respect of employee holidays, illness, as well as setting up and maintaining all employee records.

(e) The computerized wages system calculates deductions from gross pay, such as employee taxes, and net pay. Finally, a list of net cash payments for each employee is produced. (f) Cash is delivered to the wages office by secure courier.

(g) The two staff place cash into wages packets for each employee along with a handwritten note of gross pay, deductions and net pay. The packets are given to the foreman for distribution to the individual employees.

Required:

(1) Identify and explain deficiencies in Lakeview Builders system of internal control over the wages system that could lead to misstatements in the financial statements

(2) For each deficiency, suggest an internal control to overcome that deficiency.

(3) Compare the responsibilities of the external and internal auditors to detect fraud