4. Generators R Us (Manual and Stand-Alone PC Procedures) Generators R Us (GRU) is a manufacturer of portable electric generators used for emergency power supply in both civil and private disaster situations. GRU’s headquarters and manufacturing facilities are in Dallas, Texas, where they employ 125 manufacturing and clerical staff. Although much of the company’s accounting system employs advanced technology, its payroll and fixed asset systems are legacy systems that rely on manual processes supported by stand-alone PCs. Recently, GRU has experienced operational problems with these processes and the management has hired your auditing firm to assess its operations and internal control procedures. Payroll System In the GRU production departments, each worker records the number of hours he or she has worked each day by clocking in and out on a time card machine. The supervisor oversees this process and each week sends the hard-copy time cards to the payroll department. Using a stand-alone PC, the payroll department clerk enters time card data and prepares hard-copy paychecks. This process automatically updates the digital employee payroll records. The clerk files the time cards in the payroll department and sends the employee paychecks to the supervisor for review and distribution to the employees. The payroll clerk also prepares three copies of a payroll register. Copies one and two are sent to AP and the general ledger departments, respectively. The clerk files copy three in the payroll department. Upon receipt of the payroll register, the AP clerk manually prepares a check for the entire payroll, which she deposits in the payroll imprest account at the bank. A copy of the check is filed in the department, along with the payroll register. Using the payroll register and the department PC, the general ledger department clerk posts to the appropriate GL control accounts. The clerk then files the payroll register. Fixed Asset System Asset acquisition begins in the user department when the manager recognizes the need to obtain a new or replace an existing fixed asset. The user manually prepares two copies of a purchase requisition, filing one copy in the user department and sending one copy to the purchasing department. The purchasing department uses the purchase requisition to prepare three copies of a purchase order. One copy of the purchase order is sent to the supplier, one is sent to the AP department, and the last copy is filed in purchasing with the purchase requisition. The AP clerk receives the purchase order from purchasing, the asset invoice from the vendor, and a packing slip from the receiving dock after the assets arrive. The AP clerk reconciles the purchase order with the packing slip and invoice. Then, using a department PC, the clerk posts a liability to the AP subsidiary ledger and records the asset in the fixed asset inventory subsidiary ledger. The purchase order and packing slip are filed in the AP department. Next, the clerk prepares a cash disbursement voucher, which she sends along with the invoice to the cash disbursements clerk. At the end of the day, the clerk prints hard-copy summaries of the AP and fixed asset inventory ledgers, which she sends to the general ledger department. Upon receipt of the cash disbursement voucher and invoice, the cash disbursements clerk, using the department PC, prepares a check and posts the relevant data to the check register. The clerk then prints a hard copy of the check and sends it to vendor. The cash disbursement voucher and invoice are then sent to the general ledger department. User department managers handle the asset maintenance and disposal. They calculate depreciation and approve asset disposal for retired assets. Related to these actions, the managers prepare depreciation and asset disposal reports, which they send to the AP clerk, who updates the appropriate fixed asset inventory accounts. Finally, the general ledger department clerk receives and reconciles the vendor invoices, cash disbursement vouchers, and account summaries. Using the department PC, the clerk posts to the respective general ledger accounts and files the documents in the department. 1. Describe the physical and IT controls needed to reduce the risks identified above.
4. Generators R Us (Manual and Stand-Alone PC Procedures)
Generators R Us (GRU) is a manufacturer of portable electric generators used for emergency power supply in both civil and private disaster situations. GRU’s headquarters and manufacturing facilities are in Dallas, Texas, where they employ 125 manufacturing and clerical staff. Although much of the company’s accounting system employs advanced technology, its payroll and fixed asset systems are legacy systems that rely on manual processes supported by stand-alone PCs. Recently, GRU has experienced operational problems with these processes and the management has hired your auditing firm to assess its operations and internal control procedures.
Payroll System
In the GRU production departments, each worker records the number of hours he or she has worked each day by clocking in and out on a time card machine. The supervisor oversees this process and each week sends the hard-copy time cards to the payroll department. Using a stand-alone PC, the payroll department clerk enters time card data and prepares hard-copy paychecks. This process automatically updates the digital employee payroll records. The clerk files the time cards in the payroll department and sends the employee paychecks to the supervisor for review and distribution to the employees. The payroll clerk also prepares three copies of a payroll register. Copies one and two are sent to AP and the general ledger departments, respectively. The clerk files copy three in the payroll department. Upon receipt of the payroll register, the AP clerk manually prepares a check for the entire payroll, which she deposits in the payroll imprest account at the bank. A copy of the check is filed in the department, along with the payroll register. Using the payroll register and the department PC, the general ledger department clerk posts to the appropriate GL control accounts. The clerk then files the payroll register.
Fixed Asset System
Asset acquisition begins in the user department when the manager recognizes the need to obtain a new or replace an existing fixed asset. The user manually prepares two copies of a purchase requisition, filing one copy in the user department and sending one copy to the purchasing department. The purchasing department uses the purchase requisition to prepare three copies of a purchase order. One copy of the purchase order is sent to the supplier, one is sent to the AP department, and the last copy is filed in purchasing with the purchase requisition. The AP clerk receives the purchase order from purchasing, the asset invoice from the vendor, and a packing slip from the receiving dock after the assets arrive. The AP clerk reconciles the purchase order with the packing slip and invoice. Then, using a department PC, the clerk posts a liability to the AP subsidiary ledger and records the asset in the fixed asset inventory subsidiary ledger. The purchase order and packing slip are filed in the AP department. Next, the clerk prepares a cash disbursement voucher, which she sends along with the invoice to the cash disbursements clerk. At the end of the day, the clerk prints hard-copy summaries of the AP and fixed asset inventory ledgers, which she sends to the general ledger department. Upon receipt of the cash disbursement voucher and invoice, the cash disbursements clerk, using the department PC, prepares a check and posts the relevant data to the check register. The clerk then prints a hard copy of the check and sends it to vendor. The cash disbursement voucher and invoice are then sent to the general ledger department. User department managers handle the asset maintenance and disposal. They calculate
1. Describe the physical and IT controls needed to reduce the risks identified above.
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