Raspberry (Mar/ Jun 18)

(a) FIVE KEY CONTROLS and TEST OF CONTROL (10 Marks)

Key control Test of control
1 The company has a human resources (HR) Review job description of payroll
department, responsible for setting up all department and HR department to know
new joiners. the assignment of role and responsibilities
in relation to setting up the employees in
Having segregation of duties between HR the payroll system.
department and payroll department reduce
the risk of fictitious employees being set up Discuss with responsible official from
and paid. payroll department regarding the setting
up procedure of new employees in payroll
system.
2 The quarterly bonus is entered into the During visit to Raspberry Co for audit,
system by a clerk and each entry is checked observe the procedure of clerk entering
by a senior clerk for input errors prior to the data and whether senior clerk review
processing. The senior clerk signs the bonus the processing and bonus list.
listing as evidence of undertaking this
review. Obtain the reviewer signed bonus list to
review the evidence of review by senior
This ensures there is segregation of duties clerk.
which prevents/detects fraud and errors
not being identified.
3 Production employees are issued with clock Visit the power station and observe the
cards and are required to swipe their cards use of clock card by the employees and
at the beginning and end of their shift. This confirm the security staff is supervising the
process is supervised by security staff 24 attendance check in/out procedure.
hours a day.

This should ensure that employees are only

paid for hours they have worked and this
should prevent from one help swiping for
many others’ attendance.
4 Each card identifies the employee number Input dummy data into the payroll system
and links into the hours worked report to verify the system is operating
produced by the payroll system, which effectively.
automatically calculates the gross and net
pay along with relevant deductions.

This reduce the risk of error occurring and

input data such as employee wages and
statutory data recorded incorrectly.
5 On a quarterly basis exception reports Obtain the exception reports and review
relating to changes to the payroll standing the evidence of review by payroll director
data are produced and reviewed by the and check whether the director made any
payroll director. additional amendments.
 As the exception report are reviewed by the
payroll director, unusual amendments can
be identified on timely basis. This reduce
the risk of fraudulent payment and
unauthorized amendment being made.

(b) FIVE DEFICIENCIES and recommendations (10 Marks)

Control deficiencies Recommendations
1 The production supervisors determine the The bonus should be determined by the
quarterly discretionary bonus amounts to responsible official superior enough to
be paid to production staff and notify the make the decision such as production
payroll department. director and the bonus should be in line
with the HR policy of Raspberry Co.
The production supervisor is not superior
enough to determine the amount. There is To reduce the risk of miscommunication,
a risk that supervisor may increase the the bonus should be communicated in
bonus amount to favorable persons and written confirmation with the payroll
may bias on some other. department.

There is no indication that the bonus

amount are provided to payroll department
in written confirmation. If not, there is a risk
that the amount are recorded by the payroll
department incorrectly.
2 payroll system automatically calculates the Payroll department should review the
gross and net pay along with relevant output calculations from payroll system.
deductions. These calculations are not
checked. Occasionally, they should also recalculate
sample of employees manually and
This could results in system failure or errors compare the result to output from payroll
not being identified on timely basis if the system.
calculation are not checked which may lead
to over/under payment of wages to the
employees.
3 Holiday request forms are required to be Employees should be disciplined to submit
completed and authorised by relevant line holiday request form for their line
managers, however this does not always manager approval. Without approved
occur. holiday request form, payroll clerk should
not proceed holiday pay.
There could result in employees taking extra
holidays than they are entitled to which
leads to inefficient production due to
shortage of manpower.
4 the senior payroll manager reviews the list the payroll senior manager should not be
of bank payments and authorise the able to amend the payroll record.
 payment. If any errors are noted, the payroll The authorization of payment should be
senior manager amends the records. done by the responsible official outside of
payroll department such as finance
Lack of segregation of duties may result in director.
manipulation done by the payroll senior
manager. For e.g. increasing the payroll
amount of favorable person deliberately.
5 The pay packets are then delivered to the Pay packet should be distributed by
production supervisors, who distribute responsible official outside of production
them to employees at the end of the department, such as from payroll
employees' shift, as they know each department upon the sight employee
member of their production team. photographic ID as a confirmation of proof.

Although the production supervisors know Employee’s signature should be requested

their team members, the pay packets upon receiving the pay packet as the proof
should not be distributed without proof of of evidence.
identity as there is a chance that wrong pay
packets distributed to wrong person.

The production supervisor is not

independent enough to distribute pay
packets to their team members which may
result in production supervisor cut some
immaterial amount from each pay packet.

(c) Assignments the internal audit department of Raspberry Co could carry out (IA scope of work)
(5Mks)
o Value for money audit

The IAD could be assigned to determine whether Raspberry Co’s investments are worthy (for
e.g. when acquiring new assets).

o IT audit

The IAD could be assigned to ascertain the relevant IT controls over computerized
environment.

o Review of operational controls

The IAD could be assigned to ascertain day to day operations are in line with relevant control.

o Fraud investigation

The IAD could be assigned to investigate any specific area of suspected fraud and review
controls in place to prevent and detect the frauds.

o Audit to verify regulatory compliance

 Raspberry operates electrical power stations. Thus, they might be subject to many laws and
regulations such as environmental legislations. The IAD could be assigned to monitor whether
the company is in compliance with local laws and regulations.

(d) substantive procedures the auditor should perform to confirm the year-end accrual for tax
payable on employment income. (5mks)

1. Compare current year accrued income tax on employment income to prior year amount and
discuss with the management on any significant fluctuation.

2. Compare current year accrued income tax on employment income to budget amount and
discuss with the management on any significant variance.

3. Recalculate the accrual amount of income tax on employment income and compare with the
amount recorded in FS and discuss with management on any significant fluctuation.

4. Review any correspondence with tax authorities to assess if there is any outstanding tax due
and confirm whether such amount is included in the accrual amount recorded in FS.

5. Review whether any adequate disclosure is made in relation to accrued income tax on
employment income and assess whether Raspberry Co is in compliance with local legislations.