Page 327 - Accounting Information Systems

298 PART II Transaction Cycles and Business Processes

Payroll Processing System Recently the company has experienced an unusually
high level of complaints from customers regarding
Holly employees use a time clock in an unsupervised
incorrect shipments, disputes with suppliers over incor-
area to record their time on the job. The time-keeping
rect inventory receipts, and the general lack of audit trail
clerk tries to monitor the process, but is often distracted
information for reviewing transactions. You have been
by other duties. Every Friday, the shop foremen collect
hired as an independent auditor to inspect the internal
the time cards for their subordinates, review and
controls currently in place at Walker Books, Inc. Your
approve them, and deliver them to the payroll clerk.
focus at this phase of the audit is on the fixed assets and
The payroll clerk uses a stand-alone PC to record the
payroll procedures.
employee earnings in the employee records and print a
hard-copy payroll register. The payroll clerk sends one
copy of the payroll register to the accounting depart- Fixed Asset and Payroll Procedures
ment. The clerk then files the time cards and a copy of
In the various Walker Books business departments,
the payroll register in the payroll department.
employees manually register their hours worked on
The accounting department clerk receives the payroll
timesheets, which they keep at their desks until Thurs-
register, reviews it for accuracy, and uses the depart-
days, when the manager or supervisor of their depart-
ment computer to record the transaction by posting to
ment approves them. The manager or supervisor then
subsidiary and general ledger accounts including wages
forwards these timesheets to Debby, the payroll clerk,
expense, cash, and various withholding accounts. The
who manually prepares checks for each employee’s
clerk then prints the hard-copy checks, which are writ-
approved timesheet. She then posts to employee records
ten on the general cash account. The clerk signs the
and the payroll register using a laptop computer, which
paychecks and sends them to the foremen who distrib-
she is allowed to take home for work. A copy of the
ute them to the employees. Finally, the clerk files the
check is made and filed in the payroll department. The
payroll register in the department.
check is then mailed to the employee. Two payroll sum-
Required maries are then printed. One of these is sent to the
a. Create a data flow diagram of the payroll systems. accounts payable department and the other is sent to the
b. Create a system flowchart of the payroll systems. general ledger department.
c. Analyze the internal control weaknesses in the Users in individual departments verbally report their
system. Model your response according to the six fixed asset requirements to their respective managers. If
categories of physical control activities specified in the manager approved the request, he or she manually
SAS 78/COSO. prepares and submits a fixed asset request form to the
d. Make recommendations for improving the payroll purchasing department. Upon receipt of the fixed asset
procedures. Explain your solution. request form, the purchasing department clerk manually
prepares two copies of a purchase order. One copy is
2. Walker Books, Inc.—Payroll and Fixed sent to the supplier, and one is filed in the purchasing
Asset Systems (Manual System with PC department. Finally, the purchasing department man-
ually prepares and sends a hard-copy fixed asset change
Support)
report to the fixed asset department.
(Prepared by Alex Moser, Lehigh University) The accounts payable clerk receives the payroll sum-
Walker Books, Inc., is currently one of the largest book mary and writes a check to the imprest account for the
distributors in the United States. Established in 1981 in exact amount of the payroll. When fixed assets are
Palo Alto, California, Walker Books was originally a received, the receiving clerk reconciles the goods with
side project of founder and current president Curtis the packing slip and invoice and then manually prepares
Walker, who at the time worked for a law firm. At the a receiving report. The goods are sent to the user depart-
end of the first year of business, Walker Books had ment while the packing slip, invoice, and receiving
grossed only $20,000 in sales. Seeing potential, however, report are forwarded to the accounts payable depart-
Curtis Walker made the decision to quit the law firm and ment. The accounts payable clerk reconciles the docu-
concentrate fully on his bookstore. As the years passed, ments from receiving, manually writes a check to the
sales increased, more employees were hired, and the supplier, and manually prepares a journal voucher,
business facilities expanded. Although still at the original which she subsequently sends to the general ledger
location in Palo Alto, California, the company now dis- department. The general ledger clerk posts journal
tributes books to each of the 50 states, has 145 employ- vouchers and payroll summaries to the digital general
ees, and sees sales approaching $105,000,000 per year. ledger using the department PC.