Tiwannee Construction is a large road-building business in Ontario. The owner is Neil Tiwannee, who oversees all company operations. He employs 15 work crews, each made up of 6 to 10 members. Construction supervisors, who report directly to Tiwannee, lead the crews. Most supervisors are long-time employees, so Tiwannee trusts them to a great degree. The company's office staff consists of an accountant and an office manager.
Because crew needs may vary in the construction industry, supervisors hire and terminate their own crew members. Supervisors notify the office of all personnel changes. Also, supervisors forward to the office the employee TD1 forms, which the crew members fill out to claim tax-withholding exemptions. Each Thursday the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paycheques for distribution to the workers at 5 p.m.
Tiwanee Construction's accountant prepares the payroll, including the payroll cheques, which are written on a single payroll bank account. Neil Tiwannee signs all payroll cheques after matching the employee name to the time sheets submitted by the supervisor. Often the construction workers wait several days to cash their paycheques. To verify that each construction worker is a bona fide employee, the accountant matches the employee's endorsement signature on the back of the cancelled payroll cheque with the signature on that employee's TD1 form. Delays occur in completing this task as well as in reconciling the payroll bank account.
Required
1. List one efficiency weakness in Tiwannee Construction's payroll accounting system. How can the business correct this weakness?
2. Identify one way that a supervisor can defraud Tiwannee Construction under the present system.
3. Discuss a control feature Tiwannee Construction can use to safeguard against the frauds you identified in Requirement 2.