The electronic audit documentation contains a simple program that accepts payroll transaction input and calculates an individual's weekly gross and net pay. When you come to the proper place in the program, you will see places to input these data:

Employee identification (social security number).

Regular pay rate (round dollars, no cents).

Regular time (hours, 40 or fewer).

Overtime (hours over 40).

Gross earnings to date (gross pay prior to this payroll entry).

According to the client's description of the IT controls in the system:

1. The program checks for valid employee identification.
2. The regular pay rate is tested for reasonableness.
3. The system will accept no more than 40 regular-time hours.
4. There is a limit on the number of overtime hours that will be paid (32 hours). Overtime hours are paid only if the employee works 40 regular-time hours.
5. Overtime is paid at the rate of 150 percent of regular pay rate.
6. Social Security and Medicare taxes and federal income tax withholdings are calculated automatically according to applicable laws and regulations.

Applicable laws and Regulations (assume the following for this case)

The minimum wage is $7.25 per regular hour.

Social Security tax is 6.2 percent on the first $118,500 of gross pay, Medicare tax is 1.45 percent on all pay.

Federal income tax withholding is assumed to be 23 percent of gross pay.

The payroll calculation program contains control deficiencies. Your job is to identify and describe them. Follow the instructions in the electronic audit documentation. Devise and enter test transactions of your own making. Make a memo to the audit partner identifying and describing the control failures in the payroll calculation program.