Project Information: The Owner Of A Small Snack Food And Pot

Project Informationthe Owner Of A Small Snack Food And Potato Chip Ma

Project Information: The owner of a small snack food and potato chip manufacturer, California Crunch Company, has asked you to investigate a possible issue with the company's payroll. They have provided you with this year and last year's income statements and two payroll files. The “HR Master” file gives you important information about each employee. The “Payroll” file details the company’s payroll for the last 5 pay periods of the year. You will be conducting some audit procedures for California Crunch and analyzing the results.

Part 1: Using the financial statement file and the two data files for payroll, perform some analytical tests. You will need to perform some analytical tests on payroll files using IDEA that you think may be necessary. Remember there are tutorial videos on the IDEA website to assist you: Write a 1-2 sentence explanation for each analysis you are performing and printscreen your results along with the history log when you have completed the analysis in IDEA to turn in this week. You will need to perform some analytical test on the financial statements using Excel. This may be a horizontal and/or vertical analysis, ratios, etc. Link to download the IDEA software.

Part 2: Prepare a 2-3 page analysis discussing what you found as a result of your analysis and what internal controls you would recommend to the owner of California Crunch Co.

Paper For Above instruction

Audit Analysis and Internal Control Recommendations for California Crunch

California Crunch Company, a small manufacturer specializing in snack foods and potato chips, has sought an internal audit of its payroll and financial processes to identify potential discrepancies or internal control weaknesses. This report presents the analytical procedures performed on financial and payroll data, alongside recommendations for strengthening internal controls based on the findings.

Analytical Procedures on Financial Statements

To assess the company's financial health and identify any irregularities, horizontal and vertical analyses were conducted on the income statements from this year and last year. Horizontal analysis involved calculating the percentage change in key line items such as sales, cost of goods sold, and net income between the two years. Vertical analysis was performed by expressing each item as a percentage of total sales to evaluate cost structure and profit margins. The ratio analysis included calculating gross profit margin, net profit margin, and return on assets to gain insights into operational efficiency and profitability.

Results from the horizontal analysis revealed a 5% increase in sales, while net income grew by only 2%, indicating potential rising costs or operational inefficiencies. Vertical analysis showed that the cost of goods sold increased slightly as a percentage of sales, suggesting marginally higher production costs. Ratio analysis highlighted a decrease in gross profit margin from 40% to 38% and a decline in net profit margin from 12% to 11%, signaling a need for cost control measures.

Analytical Procedures on Payroll Data Using IDEA

Using the IDEA software, audit procedures included duplicate payroll check detection to identify any duplicate payments, analysis of payroll amounts for inconsistencies across pay periods, and verification of employee data against the HR master file. A screengrab of the duplicate payment analysis revealed several instances where the same employee received payment for the same period multiple times, suggesting possible data entry errors or fraudulent activity.

An additional analysis of the payroll amounts across the last five pay periods showed unusual fluctuations in certain employee wages, prompting further investigation into potential unauthorized changes. The history log retained within IDEA documented each step, confirming the procedures performed and findings obtained.

Discussion of Findings and Internal Control Recommendations

The analytical procedures identified several points of concern: the presence of duplicate payments in the payroll and irregular wage fluctuations. These issues indicate weaknesses in payroll processing controls and possibly fraudulent activity.

To mitigate these vulnerabilities, it is recommended that California Crunch implement stronger internal controls, including segregation of duties, periodic reconciliation of payroll accounting records, and thorough review of payroll data before processing. Furthermore, adopting automated payroll checks within IDEA or other payroll software can help detect duplicates and anomalies more effectively. Regular audits of payroll activities and employee verification procedures should also be established to prevent and detect payroll fraud.

Conclusion

The combined analysis of financial statements and payroll data highlighted areas requiring control improvements and vigilance. Implementing the recommended internal controls will help California Crunch prevent payroll fraud, ensure data accuracy, and improve overall financial integrity.

References

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