The Chesapeake Grocery Store is a small local grocery that only carries fresh produce, poultry, and meat that are grown or raised in the 50-mile radius of the grocery. The store also carries other typical grocery items (such as packaged and canned goods). The owner of the grocery, George Lampe, employs about 35–40 people. You are a local CPA with a small firm in the Chesapeake area, and George has retained you as his independent auditor. You are currently reviewing the store’s procedures for preparing and distributing the monthly payroll. You’ve identified the following procedures:

• Each Monday morning the managers of the various departments (e.g., produce, meat, etc.) turn in their employees’ time cards for the previous week and a summary report of the total for each employee to the store’s accountant (Charlie Huff).

• Each month, Charlie accumulates the total hours worked by each employee for the month and enters the information in his computer. Charlie uses an Excel spreadsheet.

• Charlie’s spreadsheet contains such things as each employee’s social security number, exemptions claimed, hourly wage rate, year-to-date gross wages, and FICA taxes withheld.

• Charlie prints out a payroll register indicating each employee’s gross wages, deductions, and net pay each month.

• Charlie uses the payroll register to print checks for each employee and distributes the checks on the last day of the month.

Requirements

1. Assume that the store’s management refuses to change its current system of paying the employees. What risks do you see in this situation? Identify any internal controls that might mitigate the risks you identify.

2. Next, search the web to see if you can find a software solution that you might recommend to George for the grocery store for the payroll. Defend your choice of software.

3. Now assume that George is willing to consider outsourcing the payroll function. What would you recommend? Why?