Controls And Test Of Controls Flashcards
The company has a human resources (HR) department, responsible for setting up all new joiners.
Key control:
This is a good segregation of duties, it reduces the risk of fictitious employees being set up and paid.
Test of control:
-Inquiry from members of payroll department about the process of onboarding new members, to confirm that the process is initiated by HR.
-Visit departments in person to ensure they exist and function separately
-Read their job descriptions to confirm division of responsibilities
What are key controls? And TOC?
The actions management has taken to reduce risk of fraud and error. In exam, look for evidence of segregation of duties, authorisation, physical controls
For full marks, explain the risk the control is designed to mitigate. (The purpose)
To write a good TOC:
Action (AEIOU)
S (subject matter) what is being checked
p (purpose) to ensure, to confirm, to reduce risk of…
Pre printed forms are filled by HR for all new employees
This is a good control as it ensures that all relevant information like tax ids, is obtained before onboarding ,it minimises risk of incorrect wage and tax payments.
TOC:
Inspect a sample of forms for new joiners to ensure they are filled properly, details were verified as accurate and signed
Bonus payment is entered by clerk in the system and each entry is checked by a senior clerk for errors, it is signed by him as evidence of review
this is a good control as it demonstrates check and balance to ensure no wrong bonus is entered and processed.
TOC:
If bonus is being processed at the same time, observe the clerk inputting and senior clerk reviewing and signing.
if not,
obtain bonus listing and inspect it to make sure it is signed by senior clerk as evidence that it was reviewed for errors.
Production employees are issued with clock cards and are required to swipe their cards at the beginning and end of their
shift, this process is supervised by security staff 24 hours a day.
this is a good control as it ensures only real employees are paid, and for the hours they actually worked.
this reduces risk of employees being overpaid when they didn’t complete their shifts.
test of control:
observe clock cards being swiped, and confirm that security is actually supervising and following up any disrepancies by having discussions with staff.
system automatically inputs the hours swiped into the payroll system.
this reduces risk of human error when inputting the hours when calculating payroll, it ensures that correct amounts are paid to employees.
TOC: input test data in the system, by using a dummy clock card. and verify this has been updated in the payroll
payroll director reviews changes to payroll exception reports on a quarterly basis
this ensures that any unauthorised changes to payroll data are identified and resolved on a timely basis.
TOC:
select a sample of quarterly reports
inspect for evidence that they have been reviewed by director.
cash is recieved weekly from the bank by a security company to pay the employees in cash
this is good as it ensures that cash is safely delivered, since it is a big amount. it reduces risk of theft / misappropriation .
TOC:
inquire payroll clerks how cash is delivered weekly?
inspect a sample of invoices from security company
Observe cash collection process carried out by security company
pay packets are prepared by two members of staff, one makes the packets, one checks. and they sign the weekly listing.
this is a good control as it ensures there is a segregation of duties, which helps reduce risk of fraud and errors not being identified.
TOC:
observe the members making and checking
inspect a sample of weekly listing to check for evidence that they are signed
company has an IA department which has visited stores for review. Key control and TOC?
key control: This is a strong monitoring control as stores will aim to ensure that company procedures are maintained as they would not wish IA to report any exceptions at their store.
toc: discuss with IA their programs and areas assessed. this will assess the strength of the monitoring control. review IA files and results, to confirm the visits actually took place.
The daily sales readings from the tills
along with the cash and credit card data
are transferred to head office through a
daily interface into the sales and cash
receipts records.
why its good:
This should ensure that sales and cash
records are updated on a prompt basis
and are complete and accurate.
TOC:
during interim audit, compare daily sales reading with head office ledgers of sales and cash.
inspect the date, to ensure it occurred promptly,
if it didnt, dicuss with the clerk responsible
bank reconciliation is undertaken on a monthly basis, discrepancies are reviewed by finance director
key:
it will ensure any discrepancies are identified and investigated on a timely/ prompt basis
TOC:
check the file of bank reconcilations to check that there is one for every month, check that they are carried out correctly and completely, and check that finance director has evidenced their review of any discrepancies
