Systems of internal check in respect of wages and wage payments in a large manufacturing concern
Internal check as regards wages:
ADVERTISEMENTS:
In businesses where the number of workers is large, the work connected with the maintenance of wage records and payment of wages is of much importance. There are many possibilities of misappropriation of cash under this item.
Unless there is an efficient system of internal check in operation as regards wages, the auditor should at the first instance satisfy himself with the arrangement for the preparation of Wage Sheets. If there are some shortcomings, he must disown his liability. The following may be the chances of errors or fraud:
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(1) The time records may be incorrect and incomplete and as a result, workers get wages for the period for which they have not worked:
(2) Similarly, the piece-wage records may be incomplete and incorrect and workers may get wages for the work which they have not done.
ADVERTISEMENTS:
(3) Chances of clerical errors in the preparation of Wage Sheets.
(4) Inclusion of fictitious names of ‘dummy’ or ‘ghost’ workers in the Wage Sheets.
The whole system of internal check may be kept as given below:
1. Maintenance of wage records
ADVERTISEMENTS:
(a) Time Records:
Wages may be paid to the workers according to the time spent by them. It is necessary that correct records should be maintained with regard to the time devoted by them in the factory.
Some general rules may be as follows:
(i) A separate wage department should be set up under a responsible officer.
(ii) For each worker, a Record Card should be used and on this card, details about him should be shown.
(iii) Rates of wages and alterations, if any, should all be in writing and duly authorized.
(iv) For recording time, different devices may be used:
Time Recording Clock:
When a worker enters the gate of a factory, he puts his card in the slot of the clock. The date and time of his entry are recorded on this card. Similarly, he gets the time and date recorded on the card when he leaves the factory. Thus, the card provides a correct and clear record of the time spent by a worker in the factory.
Use of Tokens:
This is not a much popular device for maintaining time records. Under this system, a token, duly numbered, is issued to each worker who keeps it hanging on the board meant for the purpose when he enters the factory and the time-keeper records his attendance in the attendance register.
Attendance Cards:
In some business houses, attendance cards are used. When a worker enters the works, he drops his card in box meant for the purpose and the gate-keeper records his attendance in the Attendance Register. This can also be done without using Attendance Cards.
Similarly, the time of entering or leaving the works is also recorded usually by the foreman of the department in which a worker works. These
two records, i.e., the one maintained by the gate-keeper and the other kept by the foreman, are then compared. Thus, errors and fraud can be avoided but all this should be done under proper supervision and control.
(b) Piece-work Records:
When wages are paid according to the actual work performed by a worker, there should be a good system to maintain records. A card known as job card or piece-worker’s card is given to each such worker.
The amount of work done by a worker is recorded on this card which is signed by the worker, foreman of the department and, where possible, by the stock-keeper to whom the goods produced is to be delivered. Sometimes, in place of the foreman, the viewer has to sign the card.
In certain organizations a separate register is kept to maintain records along with the use of Job Cards.
(c) Overtime Records:
No worker should be allowed to work overtime unless he is properly authorized to do so by some responsible officer. An overtime slip is issued to each worker on which details about his name, address, duty, etc. are given.
When he works overtime, it should be recorded on the overtime slip. It should be noted that overtime records should be separately maintained and passed by the foreman and also by the works manager.
(d) Pass-out Records:
Sometimes, a worker goes out of the factory on his personal work during working hours. He should not be allowed to go out without the permission of the foreman or of the works manager.
Two copies of pass-out slips may be prepared -one for the gate-keeper and the other for the foreman and the second one should be sent to the wages department for record. The nature of work should clearly be mentioned in the slip.
2. Preparation of wage sheets:
How to prepare Wage Sheets is another important work connected with wages.. As quoted already, information regarding attendance, etc. can be had from the Attendance Register, Job Cards or Piece-worker’s Cards, Piece-work Register, Overtime Slip, Pass-out slips, etc. and on their basis, Wage Sheets can be prepared.
The work entailed in the preparation of Wage Sheets should normally be divided into four portions to be done by clerks in the wage office or department e. g.
Two clerks to examine the time and piece-wage records, overtime records, and statements received from the foreman, etc. so that irregularities, if any, may be removed.
Third clerk to fill in the names and addresses of workers, rates of wages, attendance, gross amount of wages, etc.
Fourth clerk to check the work done already and to calculate the net amount of wages after making the deductions pertaining to rent, tax, insurance, etc.
All these clerks should perform their jobs and sign the sheets which should be certified as correct and signed by some responsible officer, such as Director, Manager, etc.
Such Wage Sheets can be prepared for both types of wages – time as well as piece-wages.
The gross wage consists of the basic pay, piece-work or other bonus and overtime. It is to be noted in particular:
(i) The basic wage should be checked for a number of employees several times each year by verifying the number of hours actually worked and calculating them on the basic rate.
(ii) Overtime payments should be carefully attended to. Such payments should be authorized by the head of the department and be duly supported by relevant overtime slips.
(iii) The Wage Sheets are generally prepared as individual pay rolls but if there are group pay rolls in which earnings depend on the group productive performance, such sheets should be signed by the foreman or the charge head of the department.
3. Payment of wages:
The Wage Sheets should then be passed over to the cashier who has not been associated with their preparation. The cashier should withdraw the necessary sum as shown by the Wage Sheets under the column, ‘Net Wages’. After the amount has been withdrawn, the following procedure may be adopted to avoid a fraud or irregularity in payment:
(1) The clerks, who were associated with the preparation of Wage Sheets, should not take part in the payment of wages to avoid collusion between two or more persons.
(2) The use of envelopes (i. e., pay packets) indicating the names of workers and amounts contained therein can be a suitable device for making payments.
(3) All workers who are to receive wages should be present at the time of payment.
(4) The foreman of each department should be present at the time of payment to prevent any sort of impersonation for workers who are absent.
(5) Proper precaution should be taken to make payments to workers who become absent at this time. In such cases, payment may be made on the basis of a letter of authority brought by a worker who is present.
(6) Generally, it is not possible to obtain the signature of each worker on the Wage Sheets. Hence, the payment should be attested by that present, e. g., the foreman, the works manager and the cashier.
(7) The payment of wages to casual labour present problems. A separate list of such workers should be prepared and the payment should be made in the presence of a responsible officer. To avoid fraud, the officer employing casual labour should not be connected with the payment of wages.