SEMESTER SPRING 2012 
FUNDAMENTALS OF AUDITING 
( ACC311) 
Assignment No. 1 
Due Date: 26-04-2012  Marks: 15 
 
Weakness Of Internal Control System 
 
Ahmad & Co.  is  a  construction  company  having  large workforce  for  its  different  work  sites. 
Wages system is being reviewed in the entity by an audit team. 
Following information is available about the wages system. 
•  At  the  time  of  entrance  and  exit,  workers  punch their  job  cards  on  the  clock  system  for recording of working hours. The machine punches the current date and time on the card. 
•  A  foreman  has  been  appointed  on  every  site  to  monitor  the  workers.  He also issues temporary entry cards and worker numbers to labor force hired on temporary basis.     
• Computerized system calculates overtime based on the input of overtime hours reported by respective foreman and adds it to worker’s pay. 
•  Computerized  pay  system  is  managed  by  two  employees  who  maintain  the  record  of workers’  normal  or  unexpected  leaves  and  their  net wages.  They can also amend the record, if required.  
• Net pay is calculated by computerized system after adjusting overtime.  
• Wages are paid in cash which is delivered on the wage pay point using secured transport. 
• Two employees from the Wages Department are assigned the duty to make the packet of wages along with final wage sheet. Henceforth, the wage packets are given to the foreman who distributes it among the worker 

Requirements: 

Find out the shortcomings (weaknesses) in the Wages System of Ahmad & Co. You are required 
to  explain  identified  shortcomings  in  context  of  internal  control  system  along  with  their remedies? (8+7) 

Solution of Assignment No. 01

Internal Control weaknesses in wage	Internal control recommendations	
system		
		
Workers can be paid for the work	A record of hours worked by each worker	
which he has not performed.	should be signed by the site foreman to	
	confirm that the hours are accurate.	
	Thumb impression should be used to	
	reduce this internal control weakness.	
		
Fake and dummy workers may be put	Daily attendance sheet should be signed by	
in Wage Sheet by the Foreman or the	the foreman and must be cross checked by	
staff who maintains wages record.	a person other than the Wages Department.	
		
Gross wages may be inflated by the	If any amendment occurs then it should be	
staff of wages department.	prepared through computerized program	
	and one person should verify it outside the	
	Wages Department.	
		
Overtime is not verified by the clock	Overtime should be verified with the clock	
system.	system of employee by preparing overtime	
	work sheet. It should be signed by	
	foreman.	
		
A record of hours worked by each	A record of hours worked by each	
employee has no printed proof.	employee should be in printed form so that	
	it may be verified by the audit department	
	or a person from outside the Wages	
	Department.	

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