Expenditure Cycle

Mountaineer Generators$$Payroll System

Mountaineer Generators $($MG$)$ was founded in $1995$ in Morgantown, WV$.$ The company specializes in a range of gasoline powered electric generators for home backup, recreation, and commercial use. They have seen rapid growth over the past few years and currently employ $150$ production, sales, and administrative employees. MG$$s current information system includes manual procedures supported by independent $($non$-$networked$)$ PCs in each department. Communication between departments is through hard$-$copy documents. You have been hired to assess Patriot$$s procedures and internal controls. The following is a description of their payroll system.

Payroll System:

In the MG production departments, each worker records the number of hours he or she

has worked each day by clocking in and out on a timecard machine. The supervisor,

Boaty McBoatface, oversees this process and each week sends the hard copy

timecards to the payroll department. Using a stand$-$alone PC$,$ the payroll department clerk enters timecard data and prepares hard$-$copy paychecks. This process automatically updates the digital employee payroll records. The clerk files the timecards in the payroll department and sends the employee paychecks to Boaty to review and distribute to the employees. The payroll clerk also prepares three copies of a payroll register. Copies one and two are sent to AP and the general ledger departments, respectively. The clerk files copy three in the payroll department. Upon receipt of the payroll register, the AP clerk manually prepares a check for the entire payroll, which she deposits in the payroll imprest account at the bank. A copy of the check is filed in the department, along with the payroll register. Using the payroll register and the department PC$,$ the general ledger department clerk posts to the appropriate general ledger control accounts. The clerk then files the payroll register.

Required:

a$.$ Prepare a DFD of the current payroll system.

b$.$ Prepare system flowcharts for the payroll system.

c$.$ Describe the uncontrolled risks associated with the system currently designed.

d$.$ Describe the physical and IT controls needed to reduce the risks identified in $$C$$

above. Explain your solution.