Audit of Payroll for ABC Distribution Company And Techniques

Questions: 1. Using the gross pay in the payroll file, check the totals for the whole file? 2. Determine if any employees are being paid more than $2,500 gross pay and print a report of such employees with full details including their name, work department and job description? 3. In preparation for the design of a sampling plan, analyze the composition of the employee gross pays using stratification. Include a summary of gross pays for each work department? 4. Produce a report showing the work department, employee number, full name, gross pay per period, pay date and cheque number for each paid employee. Sort and subtotal this report by work department? 5. Produce a report showing the details of any employee not paid? 6. Produce a report showing the pay details for any paid employee who is not on the employee master file? 7. Identify and briefly discuss any issues that suggest the possibility of fraud? Answers: Introduction This report aims to discuss the computerized payroll system, which is used by the ABC Distribution company. Simultaneously, this report provides the payroll data through different excel sheet like EMPMAST (Employee Master File), PAYROLL, and WORK DEPTS. Basically, this report presents the audit memorandum to the partner in charge. Finally, this report is also provided recommendations regarding internal control towards the frauds. 1. Calculation of Gross Pay in Payroll Sheet As per the calculation in MS Excel, total gross pay in the payroll file of the ABC Distribution Company is $99585.46. 2. Calculation of Employee paid more than $2500 with details In the appendix, table 1 shows the different employees who are getting more than $2500. Along with this, it also depicts the full details of all employees regarding their name, job description, gross pay, and department. Thus, company pays overall $27820.42 of total gross pay $99585.46. 3. Analyze the Employees Gross Pay using Stratification Stratification helps to divide the cluster of people in a single society (Hauser and Featherman, 2013). Thus, if we are designing the sampling plan, employees gross pays is $99,585.46. Table 5 in appendix provides the gross pay detail of different steta (departments) of the company. Along with this, it shows the ABC distribution pays the largest gross pay to the D11 Department as compared to other departments. Meanwhile, company pays lowest to the E83 department. 4. Report Showing Gross pay to Different Department Table 3 in appendix depicts the gross pay of the different department employees of the ABC distribution company. 5. Calculation of not paid Employees Detail On the basis of table 4 in the appendix, it can be identified that there is no detail has been find out of employee MELONI in the company payroll sheet. At the same time, MELONI name created in the employee master file. Therefore, this issue may create the possibility of fraud in the company payroll system. 6. Calculation of paid detail employees whose name not mention in master file of company Appendix table 2 evaluates the 3 employees whose names are not mentioned in the master file of the company. Though, company pays the $8754.17 of total gross. 7. Issues related to fraud There are different frauds possibilities occur while generating the computer based payroll system such as computer fraud, where the operator can alter the pay rates data easily (Gbegi and Adebisi, 2015). This fraud may also affect the inventory; cash receipt fraud, and fictitious refund frauds. Apart from this, ghost employees fraud may also occur, because some existing employees getting wages of nonexistent employees in the organization (Hess and Cottrell, 2016). Thus, this fraud happens in a big organization where the internal control system is weak. Further, unauthorised hours are also a fraud due to wrong working hours are posted in sheet (Glodstein, 2015). In spite of this, false expenses and expenditure reordered in the payroll slip are also a cause of fraud. Recommendations From the above analysis, it can be recommended that the ABC organization management should review computer generated payroll receipt. This would be helpful to identify any false payment to the wrong person and unusual hours worked (Wood, et al., 2013). Further, company should look at the cancel cheques, payments in order to stop the wrong payment. In order to avoid the ghost employees fraud, company should take different initiatives like conduct an audit in every three months. Verify return W-2 forms. Similarly, company management should also cross verify the payroll statement for any wrong payment by using the audit (Young and Moyes, 2014). Thus, this method would improve the feasibility of internal payroll. Moreover, a supervisor should responsibility to verify all claims and expenses payment so that to control any fraud possibilities. Thus, above suggestions, would be helpful to overcome the possibility of fraud. Conclusion On the basis of above analysis, it can be identified that the ABC distribution company has effectively managed its payroll system. Thereby, company pays total gross pay i.e. $99585.46. Meanwhile, it is observed that there is possibility of fraud while paying the salary like ghost employee, computer fraud, and unauthorized hours. Further, company should appoint the supervisor to verify all the claims, salaries, and expenses before transferring the amount in staff account. Similarly, company should regular conduct the audit to rectify the financial data, which helps to reduce the possibility of frauds. References Gbegi, D. O. and Adebisi, J. F. (2015)Analysis of fraud detection and prevention strategies in the nigerian public sector,Journal of Good Governance and Sustainable Development in Africa (JGGSDA),2(4). Glodstein, D. (2015) Occupational Fraud: Misappropriation of Assets by an Employee,Journal of the International Academy for Case Studies,21(5), pp.81. Hauser, R. M. and Featherman, D. L. (2013)The process of stratification: Trends and analyses. Netherland: Elsevier. Hess, M. F. and Cottrell, J. H. (2016) Fraud risk management: A small business perspective.Business Horizons,59(1), pp.13-18. Wood, J., Brown, W. and Howe, H. (2013)IT Auditing and Application Controls for Small and Mid-Sized Enterprises: Revenue, Expenditure, Inventory, Payroll, and More(Vol. 573). USA: John Wiley Sons. Young, R. and Moyes, G. D. (2014) An examination of the effectiveness of test-of-controls audit procedures for detecting fraud,International Journal of Auditing Technology,2(1), pp.22-36.