Usaha Maju is a garment company that produces family-run uniforms and various clothing. The company is located outside Tangerang, Tangsel, and currently employs 128 workers. Most manufacturing jobs involve freelancers in the cutting and sewing departments. The work is long, monotonous, so employees often move after a few months. Although the company does not issue audited financial statements, the owners have asked you, as a freelance consultant, to conduct a review of its internal controls. The focus of your current review is the payroll process.
Usaha Maju is a garment company that produces family-run uniforms and various clothing. The company is located outside Tangerang, Tangsel, and currently employs 128 workers. Most manufacturing jobs involve freelancers in the cutting and sewing departments. The work is long, monotonous, so employees often move after a few months. Although the company does not issue audited financial statements, the owners have asked you, as a freelance consultant, to conduct a review of its internal controls. The focus of your current review is the payroll process.
Usaha Maju employees use a time clock in an unsupervised area to record their time on the job. The time-keeping staff tries to monitor the process, but is often distracted by other duties. Every Friday, the shop foremen collects the time cards for their subordinates, review and approve them, and deliver them to the payroll staff. The payroll staff uses a standalone PC to record the employee earnings in the employee records and print a hardcopy payroll register. The payroll staff sends one copy of the payroll register to the accounting department. The staff then files the time cards and a copy of the payroll register in the payroll department.
The accounting department staff receives the payroll register, reviews it for accuracy, and uses the department computer to record the transaction by posting to subsidiary and general ledger accounts, including wages expense, cash, and various withholding accounts. The staff then prints the hard-copy checks, which are written on the general cash account. The staff signs the paychecks and sends them to the foremen, who distribute them to the employees. Finally, the staff files the payroll register in the department.
Question:
Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the COSO internal control framework.
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