Daniel Longan owns and manages Daniel’s Restaurant, a 24-hour restaurant near the city’s medical complex. Daniel employs 9 full-time employees and 16 part-time emplyees. He pays all of the full-time employees by check, the amounts of which are determined by Daniel’s public accountant, Gina Watt. Daniel pays all of his part-time employees in currency. He computes their wages and withdraws the cash directly from his cash register. Gina has repeatedly urged Daniel to pay all employees by check. But as Daniel has told his competitor and friend, Steve Hill, who owns the Greasy Diner, “My part-time employees prefer the currency over a check. Also, I don’t withhold or pay any taxes or workmen’s compensation insurance on those cash wages because they go totally unrecorded and unnoticed.”

Instructions

(a) Who are the stakeholders in this situation?

(b) What are the legal and ethical considerations regarding Daniel’s handling of his payroll?

(c) Gina Watt is aware of Daniel’s payment of the part-time payroll in currency. What are her ethical responsibilities in this case?

(d) What internal control principle is violated in this payroll process?