You are the audit senior on the engagement team that is performing the audit of MR Roboto Inc.'s financial statements fo

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You are the audit senior on the engagement team that is
performing the audit of MR Roboto Inc.'s financial statements for
its December 31, 20X5, year-end. Your firm has audited MR Roboto
for the past three years. You are now reviewing the company's
payroll process and controls in order to start designing your audit
programs.
MR Roboto operates a nuclear waste processing and storage
operation in a remote region of Ontario. The process is mainly
automated, but the company has a small workforce of 40 employees
who monitor the processing plant and the storage areas. The
facility is staffed 24 hours a day, seven days a week. There are
also 15 employees who work in the company's administration
department. The payroll accounting process includes some automated
and some manual procedures. You have documented the description of
the plant employee payroll process and its internal controls, as
follows.
The plant employees work seven-hour shifts and are paid based on
hours worked. There are four shifts per day to allow overlap of
employees during shift changes, since the plant processes must be
monitored at all times. Employees are assigned an employee number
when they are hired and are required to clock in and out by swiping
their employee identification cards at the plant entrance. The
time-clock data are linked into the computerized payroll system,
which processes the payroll and produces a weekly report of hours
worked. There is no monitoring of employees' clocking in/out
process. One of the audit team members observed an employee
clocking in with two employee swipe cards. When the employee
noticed the auditor watching, he explained that the other employee
will be working on the shift ". . . but he just stopped on the way
in to pick up the coffee and doughnuts for our shift change
meeting."
The payroll system calculates the weekly cash wages to be paid
to each employee, based on their hourly rates, by taking the
information from the payroll system's hours worked report,
multiplying it by the appropriate hourly wage rates, and
calculating the appropriate tax deductions. The plant employees are
paid in cash because the location of the plant is remote and there
is no bank within hundreds of kilometres. These calculations are
not checked by anyone, as they are generated by the payroll
system.
Each Friday, the payroll department prepares the pay packets and
physically hands these out to the plant employees who are on day
shifts. Every employee must present their employee identification
card to receive the pay packet. For employees on the night shifts,
the pay packets are distributed by the night supervisor. If any
packets are not claimed, the night supervisor keeps them and
returns them to the payroll department on the next business
day.