Audit of payroll and cash

It would be appropriate for the payroll accounting department to be responsible for which of the

following functions?

• approving employee time records

• maintaining records of employment, discharges, and pay increases

• temporarily retaining unclaimed employee paychecks

• preparing periodic government reports as to employees’ earnings and withholding taxes

An appropriate compliance test to confirm that only valid employees are on the payroll is to ensure that

• Separate personnel folders are originated for each new employee.

• Payroll bank accounts are reconciled monthly by appropriate personnel.

• Payroll checks are delivered directly to each supervisor by the payroll clerk.

• Personnel places names on payroll only on the basis of written pre-numbered authorizations.

Effective internal control procedures over the payroll function may include

• Reconciliation of totals on job time tickets with job reports by employees responsible for those specific jobs.

• Verification of agreement of job time tickets with employee clock card hours by a payroll department employee.

• Preparation of payroll transaction journal entries by an employee who reports to the supervisor of the personnel department.

• Custody of rate authorization records by the supervisor of the payroll department.

Proper internal control over the cash payroll function would mandate which of the following?

• The payroll clerk should fill the envelopes with cash and a computation of the net wages.

• Unclaimed pay envelopes should be retained by the paymaster.

• Each employee should be asked to sign a receipt.

• A separate checking account for payroll should be maintained.

Which of the following procedures most likely would be considered a weakness in an entity’s internal

controls over payroll?

• The personnel department sends employees’ termination notices to the payroll department.

• The employee who distributes payroll checks returns unclaimed payroll checks to the payroll department.

• Payroll checks are prepared by the payroll department and signed by the treasurer.

• A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department’s payroll summary.

Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade accounts receivable?

• Have customers send payments directly to the company’s depository bank.

• Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.

• Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts.

• Request that customers’ payment checks be made payable to the company and addressed to the treasurer.

For the purpose of proper accounting control, postdated checks remitted by customers should be

• restrictively endorsed

• returned to the customer

• recorded as a cash sale

• placed in the joint custody of two officers

Which internal control principle prescribes the use of pre-numbered printed checks?

• Technological controls

• Establish responsibilities

• Maintain adequate records

• Divide responsibility for related transactions

Cash equivalents:

• Include 6-month certificates of deposit

• Include checking accounts

• Are recorded in petty cash

• Are short-term, highly liquid investment assets

Preparing a bank reconciliation on a monthly basis is an example of:

• Protecting assets by proving the accuracy of cash records

• Establishing responsibility

• Poor internal control

• Separation of duties