EX 11-14 Payroll internal control procedures
Big Dave’s Pizza is a pizza restaurant specializing in the sale of pizza by the slice. The store employs 10 full-time and 15 part-time workers. The store’s weekly payroll averages $5,600 for all 25 workers.
Big Dave’s Pizza uses a personal computer to assist in preparing paychecks. Each week, the store’s accountant collects employee time cards and enters the hours worked into the payroll program. The payroll program calculates each employee’s pay and prints a paycheck. The accountant uses a check-signing machine to sign the paychecks. Next, the restaurant’s owner authorizes the transfer of funds from the restaurant’s regular bank account to the payroll account.
For the week of June 11, the accountant accidentally recorded 200 hours worked instead of 40 hours for one of the full-time employees.
Does Big Dave’s Pizza have internal controls in place to catch this error? If so, how will this error be detected?
Answer:
Big Dave’s Pizza does have an internal control procedure that should detect the payroll error. Before funds are transferred from the regular bank account to the payroll account, the owner authorizes a voucher for the total amount of the week’s payroll. The owner should catch the error, since the extra 160 hours will cause the weekly payroll to be substantially higher than usual.
Big Dave’s Pizza uses a personal computer to assist in preparing paychecks. Each week, the store’s accountant collects employee time cards and enters the hours worked into the payroll program. The payroll program calculates each employee’s pay and prints a paycheck. The accountant uses a check-signing machine to sign the paychecks. Next, the restaurant’s owner authorizes the transfer of funds from the restaurant’s regular bank account to the payroll account.
For the week of June 11, the accountant accidentally recorded 200 hours worked instead of 40 hours for one of the full-time employees.
Does Big Dave’s Pizza have internal controls in place to catch this error? If so, how will this error be detected?
Answer:
Big Dave’s Pizza does have an internal control procedure that should detect the payroll error. Before funds are transferred from the regular bank account to the payroll account, the owner authorizes a voucher for the total amount of the week’s payroll. The owner should catch the error, since the extra 160 hours will cause the weekly payroll to be substantially higher than usual.
