The following is a summary of an interview between Aarushi and one of the graduate auditors on the engagement - Felix.

Aarushi's role includes overseeing the Payroll process for all of Merivale's employees

There are employees on salaries (a fixed amount per year) and also on wages (an hourly amount)

Staff on salaries have standard contracts that are signed by the staff member. Aarushi has one of her team add all of these details to the payroll system and she must approve the setup of salaried staff by entering her authorisation code and also adding her signature to the physical copy of the payroll setup information. This information is stored in HR in the employee's file. Salaried staff are paid monthly (same amount every month).

There is a slightly more complicated process for staff who are wage earners. The details below explain how their fortnightly wages are prepared and calculated:

Managers at each Merivale location submit work schedules for staff at their locations. These are sent to the Operations Manager Aarushi for approval.

Aarushi compares the scheduled work hours with past activity and future anticipated activity using a report from Data Analytics Manager Alexandra. If the hours scheduled look within the expected range, the schedules are approved. To approve, Aarushi uses Xero to approve and publish the work schedules. This automatically then notifies employees through their timesheet app what hours they've been scheduled for.

Employees must clock in and clock out for each shift using a specific iPad set up at each Merivale location. They enter their mobile number and password to clock in, and also clock out.

Location managers then review the week's hours worked by employees before approving the work hours in the timesheet system (an app connected to the Xero accounting system). Location managers will mark which hours by the employee should be paid at the overtime rate (the various government wage awards/standards for employees in hospitality indicate overtime should be paid for time worked over 38 hours).

The Operations Manager then compares work scheduled vs actual hours worked. If there are any discrepancies where employees work more than 10% of the scheduled hours, the system will highlight these on the screen and she must investigate. However, if time sheets show less hours than scheduled, no flag is raised. Otherwise, these work hours are approved and transferred to the Payroll app within Xero.

Once a fortnight, the Financial Controller (Ben) gathers the transferred Payroll requests. A reconciliation is produced comparing the hours claimed in the Payroll system to the hours claimed in the Timesheet system. If the reconciliation is correct, Ben adds his authorisation code to the payroll run for the fortnight.

The payroll run is then sent to Kate Bonner (CFO) for the final review. She receives the reconciliation details. If Kate is happy, she enters her authorisation code and Xero schedules the deposits into employee bank accounts to occur overnight.

After the payments are transferred, employees are able to access their electronic pay slips that show the wages earned, taxes and superannuation.

The wage rates for employees are updated once every 12 months - these are manual updates prepared by Ben. These wage rate updates are cross checked by Aarushi to ensure that they are accurate.

The Payroll system automatically detects which payments attract penalty rates such as extra pay on Sundays and public holidays. This is built in by the system developers and Merivale do not have to do anything to ensure this is working correctly.

Required:

1, Assess the level of Control Risk for Merivale's Payroll process using the above information and any of your own research and justify your decision.

2, Based on all of your audit work so far, Camille has asked you to identify the audit strategy that should be implemented for the Merivale Group. Justify your decision.