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ANSWER KEY You are in charge of the Payroll Audit for People State University (PSU). The audit consists of four steps: A) ACL Administration; B.) Analytical Review Procedures; C) Fraud Tests; and D) Other Procedures. As you progress through the audit outline, there are questions about the procedures and outcomes. Include your answers the questions, as well as relevant output from the ACL tests, as support in your workpapers. SCOPE AND OBJECTIVES SCOPE: Conduct an audit of the Peoplesoft payroll module for payroll period ending 10-26-2000. OBJECTIVES: 1. Ensure that payroll information is accurate and reliable 2. Assess the extent to which the People State University (PSU) complies with policies and procedures, plans, laws and regulations. ACL ADMINISTRATION 1. Identify and obtain access to all database records necessary to conduct the following computer-assisted audit procedures. 1.1. Download the following databases from Wiley Press, Inc. and import the databases into ACL: 1.1.1. EMPLOYEE_FILE.DBF (www.wiley.com/college/hunton) 1.1.2. EMPLOYEE_PAY.DBF (www.wiley.com/college/hunton) 2. Save your ACL project as PSU. 3. Refer to the dictionary of codes used by these databases when appropriate (see Attachments One and Two). 4. Be sure to include documentation of each of the following tests in your workpapers. 5. Open EMPLOYEE_PAY 5.1.1. How many records are there in the database? [147] 5.1.2. How many data validity errors are there in the database? [0 data validity errors] 5.1.3. What are the following totals? 5.1.3.1. Gross Pay (TOTAL_GROS) [$178,831]

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5.1.3.2. 5.1.3.3. 5.1.3.4.

Taxes withheld (TOTAL_TAXE) [$36,584] Deductions withheld (TOTAL_DEDU) [$24,947] Net Pay (NET_PAY) [$117,292]

6. Open EMPLOYEE_FILE 6.1.1. How many records are there in the database? [101 records] 6.1.2. How many data validity errors are there in the non-date fields? [Analyze, Verify. There should be no errors. If you get errors you have probably included the date fields, which are denoted by category D]. 6.1.3. What are the total annual salaries? (ANNUAL_RT) [$1,963,945] ANALYTICAL REVIEW PROCEDURES: 1. Be sure to include documentation of each of the following tests and related questions in your workpapers. 2. Using the EMPLOYEE_FILE database, Classify on PAY GROUP and accumulate on ANNUAL_RATE. [Analyze, Classify, Click on Classify on, Select Pay Group, press OK. Click on Accumulate Fields; select Annual Rate, Press OK. The results should look as follows:] PAYGROUP PEU POP PS3 PS9 PSA PSF PSU COUNT 10 52 8 24 2 4 1 101 % 9.90% 51.49% 7.92% 23.76% 1.98% 3.96% 0.99% % 13.70% 17.80% 1.74% 48.87% 2.94% 12.43% 2.52% Annual Rate $269,032 $349,645 $34,102 $959,846 $57,725 $244,071 $49,524

100.00% 100.00% $1,963,945

2.1. QUESTION: Review this report. What are you verifying? Explain by giving an example. [Verifying the reasonableness of the salaries by pay group. For instance, group PS9 has 23.76 percent of the employees, but 48.87 percent of the salaries. The code dictionary says that PS9 is the paygroup for 9-month salaried faculty. It is reasonable in a University that this group has a higher pay average than the other groups since this

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reflects the professional group of employees with the most education.] 3. Using the EMPLOYEE_PAY database, confirm that total gross pay amount less total taxes withheld less total deductions withheld equals the net pay amount by re-calculating another net pay field. Call your new field Computed_Net. [Create a new field (edit, input file definition, add a new expression). Call the new expression/field Computed_Net. Click on the F(x) button and enter the correct mathematical expression. Click on green check and close the window. Add the column to your project view for Computed_Net.] 3.1. What are the totals of Computed_Net [117,300] and Net_pay [117,292]? 3.2. QUESTION: When you tested that total gross, less total taxes, less total deductions equals net pay, were there differences between the Computed_Net and Net_Pay fields? If so, obtain a report of all records where differences exist and explain what is probably causing the differences? [To answer this, display the records in which Net_Pay is not equal to Computed_Net. To determine the records that dont agree use the filter (f(x) ) and enter Net_Pay <> Computed_Net. The total records should be 36. It appears that the cause of the difference is rounding.] FRAUD TESTS 1. Be sure to include documentation of each of the following tests and related questions in your workpapers. 2. Invalid Employees Test: (Use EMPLOYEE_PAY database) 2.1. Determine if there are duplicate Social Security Numbers in the EMPLOYEE_PAY database. [Analyze, Duplicates, Sequence SS#, List Fields (Paycheck_N), Output FileSSN_DUP, then retrieve with Data, Select. There are two instances of duplicate SSN, as follows:] 360341898 360341898 696503393 696503393 Summer,Day Edwards, Marie Gore, Stacy Lynch,William L

2.2. QUESTION: What could be the possible reasons for the duplicate Social Security numbers? [Keying errors, new hire provided wrong number, fictitious employees, or change of name by marriage or divorce.]

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2.3. QUESTION: What would you do to find out the actual reason for these duplicates? [Verify SS#s to hard copies in employee files, contact employees and have them show their social security card.] 3. Address Test: Review addresses for the following unusual items: 3.1. How many blank addresses are in the database? [Use the ISBLANKfunction to create list. Count and list records. (ISBLANK(Address1) in the filter window,Ffx. The number of records should be three.] 3.1.1. Why might these blank addresses exist? 3.2. How many instances are there of multiple employees using the same address? [Use the duplicate function and list the address, paycheck name, employee ID, and Department ID. Use the Duplicate function on the address, list ADDRESS1, PAYCHECK_N< EMPLID< DEPTID. There are 24 records including the three blanks.] 3.2.1. QUESTION: Describe the probable causes for the duplicate addresses. [Work address is given instead of home address, employees live together, default address is input for new hires when none is available.] 3.3. How many P.O. Box numbers are listed as addresses? [Use the Soundslike function. (Edit, Filters, New Expression, Soundslike Address1, PObox). Should by 4 records] 3.4. How many out of state addresses are listed? [(Edit,Filters,New Expression, State<>FL) Should be 5 out of state addresses, plus 2 addresses with blanks for State] 3.4.1. QUESTION: Assuming PSU operates only in Florida, why would there be nonFlorida addresses? (Address field updated for terminated employees that moved, new employees that are relocating to Florida still have out of state address, temporary employees from a different state maintain permanent out-of-state address, and fictitious employees.) 4. Duplicate Appointments Test in Employee Master File. (Use EMPLOYEE_FILE) 4.1. Determine if there are duplicate employee numbers (EMPLID), and save the results to a separate file. Call this file Duplicates. Count the records and duplicates. List: Employee ID, Name, Department ID, Fulltime or Part-time, pay group, employee status, effective date, action reason, and annual rate on the report. [First analyze duplicates and sequence on EMPLID. List the fields: Name, DEPTID,FULL_PART_, PAYGROUP,

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EMPL_STATU, EFFDT, ACTION_REA, ANNUAL_RT. On the output tab, File, Name Duplicates, save, OK. Open the duplicates file (Data, Select, Duplicates) and count the file, 28 records and 15 duplicates.] 4.1.1. QUESTION: What were some of the causes of the duplicate numbers? Do not list actual employees just describe the general causes. (You will need to use the code list here. Duplicates include changes of status and terminated employees.) 5. Inactive Employee Test: 5.1. Test to verify that all employees who received paychecks were also in the current EMPLOYEE MASTER FILE. Count the number of records that do not. (Hint: You will need to join the files to identify unmatched records. Call the joined file UNMATCHED. 5.1.1. First, we must ensure that the primary key used to match (EMPLID) is a character field of the same length in both files (EMPLOYEE_FILE and EMPLOYEE_PAY) 5.1.1.1. Open EMPLOYEE_FILE. Using edit input file definition, open the field named EMPLID by double clicking on the field name. Change the type to ASCII and verify the length is 12. 5.1.1.2. Open EMPLOYEE_PAY. Using edit input file definition, open the field named EMPLID by double clicking on the field name. Change the type to ASCII and verify the length is 12. 5.1.2. With the EMPLOYEE_PAY file open; join the two files using DATA, JOIN. 5.1.2.1. 5.1.2.2. The Primary key is EMPLID. Click on Primary fields, and select add all. The Secondary file is EMPLOYEE_FILE. The Secondary Key is

EMPLID. Since we are looking for unmatched records, there are no secondary fields. 5.1.2.3. 5.1.2.4. 5.1.2.5. In the TO box enter file name UNMATCHED. Click on the MORE tab, and click the box marked UNMATCHED Primary Click on OK.

RECORDS. 5.2. Open the file called UNMATCHED 5.3. How many unmatched records are there? [77]

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5.3.1. Question: Why would these employees receive paychecks when they are no longer active per the Master File? [Final paycheck to terminated employee, Fraud scheme where paycheck is issued to terminated employee, but supervisor keeps it.] 5.3.2. Question: What would you do to verify the reasons? [Compare time records with pay records, verify termination date with employee, compare endorsements on back of checks from prior payrolls.] OTHER PROCEDURES 1. Be sure to include documentation of each of the following tests in your workpapers. 2. Identify three additional audit tests to be performed using ACL and the two data files (EMPLOYEE_FILE & EMPLOYEE_PAY). 3. What is the audit objective of each test? 4. Perform each of the three tests identified above. 5. Describe and analyze your findings.

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Attachment One Dictionary of Database Codes for EMPLOYEE_FILE Field Codes EMPLID Employee ID number NAME Employee name DEPTID Department ID JOBCODE Job code U STUDENT Student union employee (All-Times, Graduation-Periods, Holiday-Only) REG TEMP Regular or Temporary employee PAYGROUP Pay group PEU Exceptional Hourly USPS POP Salaried and Hourly OPS PS3 3 month Salaried Faculty PS9 9 month Salaried Faculty PSA Salaried A&P PSF Salaried Faculty PSU Salaried USPS ACTION Payroll action EMPL STATU Employee status (Active or Terminated) FULL PART Full (F) or Part-time (P) STD HOURS Standard Hours ACTION DT Payroll action date EFFDT Payroll action effective date EFFSQ Effective payroll sequence number ACTION REA Payroll action reason EMPL TYPE Employee type COMP FREQ Compensation frequency (Biweekly or Hourly) HOURLY RT Hourly rate MONTHLY RT Monthly rate COMPRATE Compensatory time rate ANNL BENEF Annual benefits ANNUAL RT Annual benefit rate CHANGE AMT Change amount CHANGE PCT Change percentage CMPNY SENI Company seniority date EE06CODE Equal Employment Opportunity Code 1 Executive 2 Faculty 3 Prof Non Faculty 4 Secretarial/Clerical 5 Technical/Paraprofessional 6 Skilled Craft 7 Service Maintenance

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EMPL RCD Employment record FICA STATU FICA Status (Exempt, Non-Exempt) HIRE DT Hire date JOB ENTRY Job entry date LAST INCRE Last increase date REHIRE DT Rehire date SAL ADMIN Salary administrative code SERVICE DT Service date TERMINATIO Termination date U DUAL COM Union dual compensation U OVERLAP Union Overlap

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Attachment Two Dictionary of Database Codes for EMPLOYEE_PAY Field Codes EMPLID Employee ID number SSN Social security number PAYCHECK N Paycheck name BENEFIT RC Benefits reclassification code ADDRESS1 Check address CITY Check City STATE Check State ZIP Check zip code COUNTRY Check country CHECK DT Check date PAY END DT Payroll ending date EMPL TYPE Employee type (Exempt, Salary, Hourly) DEPTID Department ID number NET PAY Net pay amount PAY GROUP Pay group PEU Exceptional Hourly USPS POP Salaried and Hourly OPS PS3 3 month Salaried Faculty PS9 9 month Salaried Faculty PSA Salaried A&P PSF Salaried Faculty PSU Salaried USPS TOTAL DEDU Total deductions amount TOTAL GROS Total gross pay amount TOTAL TAXE Total taxes amount