Although most medium and large companies have implemented sophisticated payroll and HRM systems like the one described in this chapter, many smaller companies still maintain separate payroll and HRM systems that employ many manual procedures

Typical of such small companies is the Kowal Manufacturing Company, which employs about 50 production workers and has the following payroll procedures:

• The factory supervisor interviews and hires all job applicants. The new employee prepares a W-4 form (Employee's Withholding Exemption Certificate) and gives it to the supervisor. The supervisor writes the hourly rate of pay for the new employee in the corner of the W-4 form and then gives the form to the payroll clerk as notice that a new worker has been hired. The supervisor verbally advises the payroll department of any subsequent pay raises.
• A supply of blank time cards is kept in a box near the entrance to the factory. All workers take a time card on Monday morning and fill in their names. During the week they record the time they arrive and leave work by punching their time cards in the time clock located near the main entrance to the factory. At the end of the week the workers drop the time cards in a box near the exit. A payroll clerk retrieves the completed time cards from the box on Monday morning. Employees are automatically removed from the payroll master file when they fail to turn in a time card.
• The payroll checks are manually signed by the chief accountant and then given to the factory supervisor, who distributes them to the employees. The factory supervisor arranges for delivery of the paychecks to any employee who is absent on payday.
• The payroll bank account is reconciled by the chief accountant, who also prepares the various quarterly and annual tax reports.

Identify weaknesses in current procedures, and explain the threats that they may allow to occur.

Weakness
Threat
1. Factory supervisor hires all job applicants and forwards their W-4 form to the payroll clerk. The factory supervisor could hire fictitious employees and submit their W-4 form.
2. Factory supervisor verbally informs payroll of all employee pay raises. No documentation on pay raises could lead to employee disputes and litigation.

The factory supervisor could give the fictitious employees raises.
3. Factory supervisors determine pay rates Factory supervisors can overpay or underpay new hires
4. Blank time cards are readily available. An employee could have another employee fill out a time card when they were late or not even at work.
5. Weekly time cards are not collected until the next Monday. Time cards could be altered over the weekend with fictitious or false information in the case of a vendetta against another employee.

Someone could "fire" an employee by removing his timecard over the weekend
6 Employees are automatically removed from the payroll master if they do not turn in a timecard A sick employee or one on vacation could be "fired" because they did not turn in a timecard.
7. The factory supervisor distributes pay checks. The supervisor can conveniently keep the pay checks of fictitious or fired employees.
8. Payroll account reconciled by chief accountant who also signs paychecks. Have someone else reconcile the payroll bank account.