Case Description The case involves overpayment of wages to employees making false claims for hours worked. A temporary personnel agency assigned Nurse Jane to work at Municipal Hospital. The personnel agency paid Nurse Jane, then billed Municipal Hospital for the wages and benefits. Supporting documents were submitted with the personnel agency’s bills.

Nurse Jane claimed payroll hours on agency time cards, which showed approval signatures of a hospital nursing shift supervisor. This shift supervisor had been terminated by the hospital several months prior to the periods covered by the time cards in question. Nurse Jane worked one or two days per week but submitted time cards for a full 40-hour work week.

Nurse Jane’s wages and benefits were billed to the hospital at $22 per hour. False time cards charging about 24 extra hours per week cost the hospital $528 per week. Nurse Jane was assigned to Municipal Hospital for 15 weeks during the year, so she caused overcharges of about $7900. However, she told three of her crooked friends about the procedure, and they overcharged the hospital another $24,000.

Audit Trail Each hospital work station keeps ward shift logs, which are sign-in sheets showing nurses on duty at all times. Nurses sign in and sign out when going on and off duty. Municipal Hospital maintains personnel records showing, among other things, the period of employment of its own nurses, supervisors, and other employees.

AUDIT APPROACH ANALYSIS

Audit Objective The auditor’s objective is to obtain evidence determining whether wages were paid to valid employees for actual time worked at the authorized pay rate.

Controls Relevant to the Process Control procedures in the payroll process should include a hiring authorization for putting employees on the payroll. For temporary employees, this authorization includes contracts for nursing time, conditions of employment, and terms, including the contract reimbursement rate. Control records of attendance and work should be kept (ward shift log). Supervisors should approve time cards or other records used by the payroll department to prepare paycheques.

In this case, the contract with the personnel agency provided that approved time cards had to be submitted as supporting documentation for the agency billings.

Required:

Describe in detail the audit procedures you would perform in this case. Consider tests of control, and substantive tests, such as dual-purpose tests of transactions and/or tests of details of balance. Which tests do you consider likely to detect the over-payment of hourly wages? Why?