Question
You are the in-charge auditor for the following audit of BFF payroll system. Below is the information about the payroll process and system: a. BFF
You are the in-charge auditor for the following audit of BFF payroll system. Below is the information about the payroll process and system: a. BFF employs over 4,400 employees. Approximately 2,400 of those employees are salaried, the rest are hourly paid and about 10% of these hourly-paid employees are non-production (i.e. administrative/office) employees.b. Employees are paid bi-weekly. All employees have an ID badge that they swipe to enter the facilities. Hourly-paid employees must also swipe their ID card to clock-in at the start of their shift and swipe again when they clock-out.c. Hourly employees earn pay at straight-time for the first 80 hours in bi-weekly pay period, time-and-a-half for the next 20 hours in a pay period and double time for any hours exceeding 20 hours in a pay period. All overtime hours must be approved by the employees supervisor before payroll can process the timesheet. The total amount of overtime pay has increased by 30% since last fiscal year.d. The company utilizes a widely used and market tested payroll package for processing of all payroll transactions.e. The payroll system interfaces with the general ledger system.f. BFF has established a separate payroll imprest account for the processing of payroll checks. Amounts are deposited in this account from the general account to cover any checks presented against the imprest account each day.During the walk-throughs of the payroll processes and interviews with key Payroll, HR and IT personnel, your audit staff have identified several preliminary observations and potential issues, as follows:1. Last year, management changed the vacation accrual policy, so that employees can only accrue up to twtice their annual earned hours. Employees earn 80 hours every year for their first 5 year of service; 120 hours up to their 10th year, and 160 hours up to their 15th year. . If employees have hours over their maximum limit at year end, their last paycheck of the year would include payment of those unused vacation hours.
Question 1: Discuss what kind of control procedures should be in place to mitigate the risks of errors in processing this vacation policy at year end. Please include any assumptions you are making about the payroll system and how such assumptions would affect the relevant risks and corresponding controls you plan to assess.2. Concerns about the accuracy, timing, and completeness of payroll withholdings and deductions were noted. Emmployess would fill out the appropriate forms to authorize such deductions and submit the form to the Payroll Dept for processing. Such withholding include: a). Employee loans to cover the cost of extra benefits or product purchases; b). Contributions to long-term retirement plans; c). Contributions to charitable organizations: and d). Court ordered garnishments. Questions 2: Discuss how your would test the accuracy and timeliness of payroll processing such withholdings. And based on your test results, what kind of conclusions can you make?3. Overtime hours increased by 20% and total OT pay increasing by $6 million for this fiscal year. However, this fiscal years production levels had not changed much from last yea production levelsr, but there were a few rush orders during this summer. Question 3: Discuss what concerns, if any, you may have about why OT has increased so much. What kind of analysis or tests would you perform to confirm your suspicions or to investigate whether there were valid business reasons for such OT increases? 4. Information pertaining to employees leaving the company was not communicated to the IT department, resulting in extensive delays before those employees system rights were terminated. Question 4: Discuss what risks this situation presents and what controls should be in place (state your assumptions) and how would you test such controls?
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