QUESTION 2

NAK Consult Ltd is a construction company with many contracts being executed concurrently. A large number of workers are on various construction sites. NAK Consult Ltd has an internal audit department and the team is currently reviewing cash wages systems within the company. The following information is available concerning the wages systems:

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.

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

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

The computerized wages system calculates deductions from gross pay, such as employee taxes (PAYE), and other statutory deductions.

Finally, a list of net cash payments for each employee is produced. Cash is delivered to the wages office by secure courier. The two staff place cash into wages envelopes for each employee along with a handwritten note of gross pay, deductions and net pay. The envelopes are given to the foreman for distribution to the individual employees.

Required:

Identify and explain FIVE deficiencies in NAK Consult Ltd system of internal control over the wages system that could lead to misstatements in the financial statements, and, for each deficiency, suggest an internal control to overcome that deficiency. (20 marks)

Note: Prepare your answer using two columns headed Control deficiency and Internal Control recommendation respectively.