2. Walker Books, Inc.—Payroll and Fixed
Asset Systems (Manual System with PC
Support)
(Prepared by Alex Moser, Lehigh University)
Walker Books, Inc., is currently one of the largest book
distributors in the United States. Established in 1981 in
Palo Alto, California, Walker Books was originally a
side project of founder and current president Curtis
Walker, who at the time worked for a law firm. At the
end of the first year of business, Walker Books had
grossed only $20,000 in sales. Seeing potential, however,
Curtis Walker made the decision to quit the law firm and
concentrate fully on his bookstore. As the years passed,
sales increased, more employees were hired, and the
business facilities expanded. Although still at the original
location in Palo Alto, California, the company now dis-
tributes books to each of the 50 states, has 145 employ-
ees, and sees sales approaching $105,000,000 per year.
Recently the company has experienced an unusually
high level of complaints from customers regarding
incorrect shipments, disputes with suppliers over incor-
rect inventory receipts, and the general lack of audit trail
information for reviewing transactions. You have been
hired as an independent auditor to inspect the internal
controls currently in place at Walker Books, Inc. Your
focus at this phase of the audit is on the fixed assets and
payroll procedures
PROBLEM 2: - Fixed Asset and Payroll Procedures
In the various Walker Books business departments, employees manually register their hours worked on timesheets, which they keep at their desks until Thursdays, when the manager or supervisor of their department approves them. The manager or supervisor then forwards these timesheets to Debby, the payroll clerk, who manually prepares checks for each employee’s approved timesheet. She then posts to employee records and the payroll register using a laptop computer, which she is allowed to take home for work. A copy of the check is made and filed in the payroll department. The check is then mailed to the employee. Two payroll summaries are then printed. One of these is sent to the accounts payable department and the other is sent to the general ledger department. Users in individual departments verbally report their fixed asset requirements to their respective managers. If the manager approved the request, he or she manually prepares and submits a fixed asset request form to the purchasing department. Upon receipt of the fixed asset request form, the purchasing department clerk manually prepares two copies of a purchase order. One copy is sent to the supplier, and one is filed in the purchasing department. Finally, the purchasing department manually prepares and sends a hard-copy fixed asset change report to the fixed asset department. The accounts payable clerk receives the payroll summary and writes a check to the imprest account for the exact amount of the payroll. When fixed assets are received, the receiving clerk reconciles the goods with the packing slip and invoice and then manually prepares a receiving report. The goods are sent to the user department while the packing slip, invoice, and receiving report are forwarded to the accounts payable department. The accounts payable clerk reconciles the documents from receiving, manually writes a check to the supplier, and manually prepares a journal voucher, which she subsequently sends to the general ledger department. The general ledger clerk posts journal vouchers and payroll summaries to the digital general ledger using the department PC.
Required:
- Create a system flowchart of the existing system.