Chapter 20, Problem 26DQP

The following are various asset misappropriations involving the payroll and personnel cycle.

1. 1. The payroll clerk increased his salary by $100 each pay period. After a few weeks, he also increased the hourly rate for his friend who works in the shipping department.
2. 2. The payroll clerk submitted payroll information for a fictitious employee and had the funds directly deposited to a bank account that he controlled.
3. 3. An employee adds 10 overtime hours that she did not work to her time record each pay period.
4. 4. Two factory employees have an arrangement that one of them will take each Friday off, and the other employee will record their time worked so that the absent employee will be paid.
5. 5. A supervisor does not notify human resources that an hourly employee has left the company. He continues to submit time records for the employee. The money is directly deposited in the former employee’s bank account, and he splits the amount paid with the supervisor.

Required

1. a. For each misappropriation, indicate the transaction-related audit objective that was not met.
2. b. Indicate one or more controls that would be most effective in preventing or detecting the misappropriation.
3. c. Because the controller is concerned about fictitious employees, she has recommended a surprise payroll payoff. Which misappropriations would be detected by the surprise payroll payoff? How is the payoff done if employees do not receive payroll checks because payment is directly deposited into their bank accounts?