A CPA’s audit documentation (working papers) contains a narrative description of a segment of the Croyden Factory, Inc., payroll system and an accompanying flowchart (see below).
Narrative
The internal control system with respect to the personnel department functions well and is not included in the accompanying flowchart.
At the beginning of each workweek, payroll clerk 1 reviews the payroll department files to determine the employment status of factory employees and then prepares time cards and distributes them as each individual arrives at work. This payroll clerk, who is also responsible for custody of the signature stamp machine, verifies the identity of each payee before delivering signed checks to the foreman.
At the end of each workweek, the foreman distributes the payroll checks for the preceding workweek. Concurrent with this activity, the foreman reviews the current week's employee time cards, notes the regular and overtime hours worked on a summary form, and initials the time cards. The foreman then delivers all time cards and unclaimed payroll checks to payroll clerk 2.
Required:
a. Based on the narrative and the flowchart, what are the weaknesses in internal control?
b. Based on the narrative and the accompanying flowchart, what inquiries should be made to clarify possible additional weaknesses in internal control? Do not discuss the internal control system of the personnel department.
(AICPA, adapted)
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