Items 1 through 8 are selected questions typically found in internal control questionnaires used by auditors to obtain an understanding of internal control in the payroll and personnel cycle. In using the questionnaire for a client, a "yes" response to a question indicates a possible internal control, whereas a "no" indicates a potential deficiency.

1. Does an appropriate official authorize initial rates of pay and any subsequent changes in rates?

2. Are formal records such as time cards used for keeping time?

3. Is approval by a department head or supervisor required for all time cards before they are submitted for payment?

4. Does an adequate process exist to ensure proper coding of time records to specific jobs or products, such as work orders, job numbers, or some similar identification provided to employees?

5. Is the distribution of payments to employees independent of timekeeping?

6. Are employees required to show identification to receive paychecks or are they re quired to use direct deposit?

7. Are written notices documenting reasons for termination required?

8. Does anyone independently verify the payroll bank account reconciliation?

Required

1. Discuss why these are important testing and control questions

2. What procedures would you use to test these questions?

Answer:

1. Yes, Tested by approval authority procedure.

2. Yes, Tested by documentation procedure.

3. Yes, Tested by authority procedure procedure.

4. Yes, Tested by Separation of Duties procedure.

5. No, Tested Periodic Reconciliations by procedure.

6. Yes, Employees are required to use direct deposits. Tested by Standardization procedure.

7. Yes, Tested by Documentation procedure.

8. Yes, Tested by Periodic Reconciliations procedure.

Business responsibilities include plan administration functions such as maintaining the financial books and records of the plan, and filing a complete and accurate annual return/report for your plan. Because errors and fraud can and do occur, it is important that we establish safeguards for our plan to ensure we can adequately meet our fiduciary responsibilities. One way this can be accomplished is by implementing effective internal control over financial reporting.

Effective internal control reduces the risk of asset loss, and helps ensure that plan information is complete and accurate, financial statements are reliable, and the plan’s operations are conducted in accordance with the provisions of applicable laws and regulations. When internal control is effective, we have reasonable assurance that our plan is achieving its financial reporting objectives. When it is not effective, we have little or no such assurance.

Internal controls are policies and procedures put in place to ensure the continued reliability of accounting systems. Accuracy and reliability are paramount in the accounting world. internal control procedures in accounting can be broken into seven categories, each designed to prevent fraud and identify errors before they become problems.

Separation of Duties

Separation of duties involves splitting responsibility for bookkeeping, timekeeping, deposits, reporting and auditing. The further duties are separated, the less chance any single employee has of committing fraudulent acts. For small businesses with only a few accounting employees, sharing responsibilities between two or more people or requiring critical tasks to be reviewed by co-workers can serve the same purpose.

Access Controls

Controlling access to different parts of an accounting system via passwords, lockouts and electronic access logs can keep unauthorized users out of the system while providing a way to audit the usage of the system to identify the source of errors or discrepancies. Robust access tracking can also serve to deter attempts at fraudulent access in the first place.

Physical Audits

Physical audits include hand-counting cash and any physical assets tracked in the accounting system, such as inventory, materials and tools. Physical counting can reveal well-hidden discrepancies in account balances by bypassing electronic records altogether. Counting cash in sales outlets can be done daily or even several times per day. Larger projects, such as hand counting inventory, should be performed less frequently, perhaps on an annual or quarterly basis.

Standardization and Documentation

Standardization and proper documents used for financial transactions, such as invoices, internal materials requests, inventory receipts and travel expense reports, written proofs of activities such as promotion, termination can help to maintain consistency in record keeping over time. Using standard document formats can make it easier to review past records when searching for the source of a discrepancy in the system. A lack of standardization can cause items to be overlooked or misinterpreted in such a review.

Trial Balances

Using a double-entry accounting system adds reliability by ensuring that the books are always balanced. Even so, it is still possible for errors to bring a double-entry system out of balance at any given time. Calculating daily or weekly trial balances can provide regular insight into the state of the system, allowing you to discover and investigate discrepancies as early as possible.

Periodic Reconciliations

Occasional accounting reconciliations can ensure that balances in your accounting system match up with balances in accounts held by other entities, including tallying of payment according to timekeeping cards before payments, banks, suppliers and credit customers. For example, a bank reconciliation involves comparing cash balances and records of deposits and receipts between your accounting system and bank statements. Differences between these types of complementary accounts can reveal errors or discrepancies in your own accounts, or the errors may originate with the other entities.

Approval Authority

Requiring specific managers to authorize certain types of transactions can add a layer of responsibility to accounting records by proving that transactions have been seen, analyzed and approved by appropriate authorities. Requiring approval for large payments and expenses can prevent unscrupulous employees from making large fraudulent transactions with company funds.