1. Stock, Payroll & Non –current assets
Chapter 5
Stock, Payroll & Non –current assets

2. The Inventory Subsystem
Inventory is important to both a retail business and a manufacturing business. A manufacturing business has to manage raw materials, work in process and finished goods. Stock can be straight forward where the items are large and valuable, on the other hand stock can be difficult when there are multiple items and of various sizes.

3. Internal Controls Basic Controls
Completeness – all stock transactions need to be recorded using prenumbered and sequential despatch slips and invoices
Accuracy – record transactions accurately, can use stock cards or MYOB stock reports for immediate updates, internal checking of amounts and quantities should take place.
Validity – Sign off and authorise despatch slips and receiving reports.
Safeguarding – Secure storage of records, insure stock, encourage a theft minimisation environment

4. Internal Controls Basic Controls
Accountability – staff need to be accountable for stock items and stock taking
Valuation – monthly review of stock items, damaged or obsolete stock.

5. Summary of Internal Controls in the inventory subsystem
Control Objective
Details
Specific Internal Control
Complete Records
All transactions should be recorded
Stock documents prenumbered in sequence
Validity
Recorded transactions should represent actual stock receipts/issues
Transactions authorised
Requisition forms authorised
Authorisation procedures for receipt/issue
Accuracy
Record transaction correctly
Transaction classified accurately
Record quickly
Check calculations
Chart of Accounts
Procedures are timely
Safeguards
Stock kept in locked area
Restrict access to stock
Authorised employee to handle stock
Physical security
Locked area
Specific stock functions for staff
Accountability
Reconcile stock cards with stock on hand and general ledger
Regular stock takes
Verification of accounts to stock cards
Valuation
Valued in acceptable manner
Deteriorated/obsolete items write off
Check valuation basis
Regular inspection, procedures for write off

6. Payroll Cycle and Internal Control

7. Outputs of the Payroll Process
Payslips
Payroll Register
Deductions
General Ledger Information
Taxation Reports

8. Outputs of the Payroll Process
1. New employees are only to be added to the payroll system when information is received in a pre-determined organisational format with the signature of the hiring manager and second level authorisation.
2. Segregation of duties is required between the three main functions of payroll:
a. Person 1 – insert the wages rate.
b. Person 2 – calculate the amount owing.
c. Person 3 – make payments.
3.Deductions must be notified in writing from the employee.

9. Outputs of the Payroll Process
4. Authorisation must be received on all time card changes to standard hours and for overtime requests.
5. Payslips must be distributed to the employee only, and kept by their supervisor if unavailable.
6. Returns and payments to the ATO must be made on time by the accounting department.

10. Outputs of the Payroll Process
7. Termination of employment must be notified to the payroll department as soon as practicable to avoid overpayment.
8. All changes to payroll records must be evidenced by the staff member’s signature on the source documents.
9. Bank transfer file totals should be checked against the payroll register to ensure accuracy of payments.

11. Outputs of the Payroll Process
10. Payroll staff should not have the authorisation to make changes to their own payroll records.
11. Personnel files should be kept in a secure place with access only given to authorised payroll staff.
12. Accounting records create a complete audit trail: time cards, job tickets, disbursement vouchers, journal information, payroll subsidiary ledger, and the general ledger accounts of Wages and Salaries Payable, Cash and Payroll Clearing.

12. Internal Controls Control Risk in Payroll System
Payments to fictitious employees
Payment of hours not worked
Payment at a higher rate then authorised
Payroll is a major expense to an organisation and there are a number of legislative issues to adhere to, as well as the confidential nature of payroll data

13. Internal Controls Inherent Safeguards
Employees will complain if underpaid
Payment of taxes and superannuation must generate reconciled reports to meet government requirements
Payroll transactions are uniform and straightforward
Review procedures at year end provide verification of balances

14. Payroll Functions

15. Internal Controls for Payroll
Segregation of duties
Authorisation of payroll
Safeguarding payroll
Proper documentation
Independent checks and reconciliations
Classification and accuracy

16. Summary of Internal Control System in the Payroll Cycle

17. Summary of Internal Control System in the Payroll Cycle

18. Non Current Assets (NCA)
An organisation should have a set of procedures for recording an asset value.
A Key control is an asset register which includes:
Description
Supplier
An ID number
Date of purchase
Location
Warranty details
Estimated life
Additional Costs
Depreciation details

19. Non Current Assets (NCA)
Should follow a maintenance schedule
Depreciation based on set policies
Any acquisition or disposal of a NCA should be authorised and documented

20. Internal Controls Basic Controls
Completeness – All NCA transactions need to be recorded using purchase orders and invoices
Accuracy – Set procedures for recording NCA, internal checks, reconciliation between the asset register and the control ledger
Validity – All NCS purchase orders need to be approved, 3 quotes for large items

21. Internal Controls Basic Controls
Safeguarding – Secure storage, physical security maintained, limited access, regular inspection, insurance cover, asset registered secured
Accountability – Staff accountable for reconciliations and maintaining NCA
Valuation – Monthly review of all NCA including condition, revaluation/devaluation, adequacy of accumulated depreciation, useful life and scrap value

22. Summary of Internal Controls in the NCA subsystem
Control Objective
Details
Specific Internal Control
Maintenance of complete records
Asset purchase/disposals/additions and depreciation should be accounted for
Procedures for recording asset transactions
Asset register and accounts kept up to date
Validity
Recorded purchases should be for assets actually acquired
Purchases, disposals, additions and depreciation should be authorised
Check purchase order, receiving report and invoice
Check authorisation for all aspects
Set procedures for all aspects
Accuracy
NCA should be at correct value
NCA transactions should be properly classified
Accounted for on a timely basis
Proper and accurate recording
Procedures for purchasing, disposal and depreciation
Internal check/verification
Chart of accounts
Set procedures for recording
Reconciliation between asset register and control account

23. Summary of Internal Controls in the NCA subsystem
Control Objective
Details
Specific Internal Control
Safeguards
NCA housed safely with restricted access
Adequate insurance cover
Physical security maintained
Access to authorised personnel
Inspection of asset
Standard insurance cover
Accountability
Subsidiary balances should agree with control account balances
Register kept in a safe area
Check and inspection on balances and assets
Valuation
NCA values should reflect the worth of the assets to the business
Procedures to record all assets
Periodic review of assets condition
Authorisation for revaluations and devaluations
Review accumulated depreciation and useful life