Question

Although most medium and large companies have implemented sophisticated payroll and HRM systems like the one described in this chapter, many smaller companies still maintain separate payroll and HRM systems that employ many manual procedures. Typical of such small companies is the Cardinal Manufacturing Company, which employs about 50 production workers and has the following payroll procedures: • The factory supervisor interviews and hires all job applicants. The new employee prepares a W-4 form (Employee’s Withholding Exemption Certificate) and gives it to the supervisor. The supervisor writes the hourly rate of pay for the new employee in the corner of the W-4 form and then gives the form to the payroll clerk as notice that a new worker has been hired. The supervisor verbally advises the payroll department of any subsequent pay raises. • A supply of blank time cards is kept in a box near the entrance to the factory. All workers take a time card on Monday morning and fill in their names. During the week they record the time they arrive and leave work by punching their time cards in the time clock located near the main entrance to the factory. At the end of the week the workers drop the time cards in a box near the exit. A payroll clerk retrieves the completed time cards from the box on Monday morning. Employees are automatically removed from the payroll master file when they fail to turn in a time card. • The payroll checks are manually signed by the chief accountant and then given to the factory supervisor, who distributes them to the employees. The factory supervisor arranges for delivery of the paychecks to any employee who is absent on payday. The payroll bank account is reconciled by the chief accountant, who also prepares the various quarterly and annual tax reports. Identify weaknesses in current procedures, and explain the threats that they may allow to occur. Suggest ways to improve the Cardinal Manufacturing Company’s internal controls over hiring and payroll processing. Draw a BPMN diagram that shows Cardinal Manufacturing Company’s payroll process redesigned to implement your suggestions.

Answer 1

A) Weaknesses and Threats

	Weaknesses	Threats
1	Pay rates of employees are determined by the company supervisor.	The supervisor has the power to increase or decrease in payment to the employees.
2	All job applicants are hired by the company supervisor and the supervisor sends the applicants W-4 form to the payroll clerk.	Fake employees may be hired and submission of applicants W-4 form to the payroll clerk.
3	All time available of blank time card	Any employee can punch the time card of other employees even the employee is absent or not in work. This verbal inform give the fake information to the employees.
4	The verbal inform of employees payroll raise	These also lead taking legal action and argument with the supervisor
5	Irregular collection of weekly time cards.	This irregular collection of time cards leads to creation of fake employees and information theft.
6	The reconciliation of payroll accounts by the chief accountant after signing of paychecks	This reconciliation is not more effective and waste of time.
7	Distribution of pay checks by the company supervisor	This leads totheft of pay checks
8	The payroll master file automatically removes the employees if they do not turn the time card	The payroll master file automatically removes one who on the vacation and sick employees from the company because no turning of time card

B) Following are the ways to improve the Cardinal Manufacturing Company’s internal controls over hiring and payroll processing

1) The company should follow one advice form for new hires, rate changes, fires and etc.

a) That form is filling by hand and given to the payroll department.

b) Theses submitted forms are reviewed and verified by the company supervisor.

2) Before hiring the company should investigate the characteristics of the applicants to the references given by the applicants.

3) After hiring the company should remove their blank time within a week and give new time card with printing the name of the employee.

4) The foreman strictly collects the employee's time cards by weekly and submits to the payroll clerk. And the foreman investigates the missing time cards of the employees.

5) The company should issue the employees pay checks by the responsible person rather than the foreman. The unclaimed pay checks are submitted to the respective person and it will not give to the employees until the employee claim their respective pay check.

6) The company should reconcile the payroll bank account by the respective person and not by the payroll clerk and chief accountant.

7) The production department of the company should give time card to the each employee and the "work ticket" is also used to collect the working time of each employee.Finally, the employee's time card is compared with the work ticket.

8) The company officer can give surprise visit and distribute the payroll of the employees.

C) BPMN Diagram that shows Cardinal Manufacturing Company’s payroll process

Employee Activity Factory Workers Time cards Completion O Supervisors Weekly O Payroll clerk Weekly Paychecks Preparation Payroll Record O Chief Accountant Sign Paychecks Accounts Payable Monthly o Receive and Reconcile bank statement O

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