The following questions concern internal controls in the payroll and personnel cycle. Choose the best response.
a. An auditor found that employee time records in one department are not properly approved by the supervisor. Which of the following could result?
(1) Duplicate paychecks might be issued.
(2) The wrong hourly rate could be used to calculate gross pay.
(3) Employees might be paid for hours they did not work.
(4) Payroll checks might not be distributed to the appropriate employees.
b. Control risk is the risk that a material misstatement in an account will not be pre-
vented or detected on a timely basis by the client’s internal controls. The best control
to prevent or detect fictitious payroll transactions is to
(1) use and account for prenumbered payroll checks.
(2) restrict authorization for hiring, terminating, or changing pay rate or job status to
the human resources function.
(3) verify internally authorized pay rates, computations, and agreement with the
payroll register.
(4) conduct periodic independent bank reconciliations of the payroll bank account.
c. A factory supervisor at Steblecki Corporation discharged an hourly worker but did
not notify the human resources department. The supervisor then forged the worker’s
signature on time cards and work tickets and, when giving out the checks, diverted
the payroll checks drawn from the discharged worker to his own use. The most effec-
tive procedure for preventing this activity is to
(1) require written authorization for all employees added to or removed from the
payroll.
(2) have a paymaster who has no other payroll responsibility distribute the payroll
checks.
(3) have someone other than persons who prepare or distribute the payroll obtain
custody of unclaimed payroll checks.
(4) from time to time, rotate persons distributing the payroll.
