Required:

a. Prepare a walk-through worksheet for E-8, where the auditors walk through the documentation only.

b. Prepare a walk-through worksheet for E-8, where the auditors actually perform the outlined procedures.

E-8,

State auditors were examining a project where Nealson Company had subcontracted with the State Highway Department to landscape the entrance to a state park. The auditors prepared the following narrative description of Nealson’s payroll system:

Project time-tickets are prepared weekly by the project supervisor for each hourly employee who checks and initials his or her time-ticket before the batch of tickets is delivered to the main office. Information for the tickets is keypunched onto a magnetic tape, which then is used to process the weekly payroll from the payroll master file. An earnings statement and a paycheck is printed for each employee, and a payroll register is printed as a part of each weekly run. Management scans the register for potential problems and errors.

Afterwards, problems are followed up and the register is filed. An error report is prepared manually for follow-up items. These error reports are attached to and filed with the payroll register. Project supervisors pick up the paychecks weekly and distribute them to the employees at their respective project sites.

Required:

a. Prepare a flowchart, with a parallel narrative, for Nealson’s payroll system.

b. Identify preventive, detective, and corrective controls in this system.