QUESTION 2
You are the Chief Financial Officer of Vegas Girl’s Pizza involved
Governance team to provide your opinion and solutions for the following questions:
Consider the following issues that relate to Vegas Girl’s Pizza payroll and fixed assets systems, then answer the questions pertaining to these expenditures processes.
As mentioned in the opening part of the Vegas Girl’s Pizza case, there are now 49 locations throughout the greater Pittsburgh area. Each one of those restaurant locations employs a full-time store manager and varying numbers of kitchen staff, servers, and delivery staff. The kitchen staff, servers, and delivery staff vary between full-time and part-time status. There tend to be high rates of turnover, especially among the part-time staff.
Vegas Girl’s Pizza pays its employees on a weekly basis each Friday for the week ending on the previous Saturday. Employee paychecks include withholdings for federal taxes as well as state and local taxes applicable for the employee’s residence. Employees may live in one of the three states and over twenty-five municipalities that are included in the greater Pittsburgh regional area. All payroll accounting is handled by Vegas Girl’s Pizza at its home office.
Each restaurant must also maintain various fixed assets in order to operate. Following is a general list of fixed assets for each store:
• Furniture and store fixtures, including tables, chairs, and built-in items such as shelving, counters, and booths.
• Kitchen equipment, such as refrigerators, stoves, ovens, and dishwashing machines
• Computers
Note that the number of each of these fixed assets maintained at each location varies, depending upon the size of the store. Also note that each member of the delivery staff uses his or her personal automobile (rather than a company-owned car) for customer deliveries.
In addition, the home office maintains the following types of fixed assets:
• Land and the office building
• Office furniture and fixtures
• Computers and other office equipment
• Telephone systems
Finally, fixed assets maintained at the commissary include the following:
• Fixtures, such as built-in cabinets and shelving
• Kitchen equipment
• Computers
• Delivery trucks
All fixed asset accounting is handled by Vegas Girl’s Pizza at its home office.
Required:
1. Describe how you believe an efficient and effective payroll system should be organized at Vegas Girl’s Pizza. Include details on:
a) What types of payroll documentation should be prepared at the restaurant locations?
b) How will the necessary information for payroll flow between restaurants and the home office?
c) How could IT systems be used in the payroll processes?
2. How could Vegas Girl’s Pizza prevent the occurrence of a ghost employee at one of its restaurant locations?
3. From a cost-benefit perspective, what risks factors exist in Vegas Girl’s Pizza payroll processes that make it worthwhile to implement thorough internal controls? Describe the related internal control that could help detect or prevent each risk.
4. If Vegas Girl’s Pizza wished to reduce the payroll risks you identified previously, it could consider outsourcing much of the payroll processing. (ADP is an example of a payroll processing company.) Search the website of a payroll processing firm to determine the benefits to Vegas Girl’s Pizza of outsourcing a substantial portion of its payroll processing. Describe these benefits, the risks avoided by outsourcing and the risks still borne by Vegas Girl’s Pizza after outsourcing. Also, describe the payroll record keeping functions that Vegas Girl’s Pizza must still maintain even if it outsources a substantial portion of its payroll processing.
5. Describe how you believe an efficient and effective system of fixed assets accounting should be organized at Vegas Girl’s Pizza. Be sure to include the following issues in your response:
a) How should the fixed assets accounting department maintain control over fixed assets in the various restaurant locations?
b) How should IT systems be used in the fixed assets process?
6. Considering the nature of the relationship between Vegas Girl’s Pizza home office and its franchise owners, the company may be quite vulnerable to theft or fraudulent financial reporting committed by these franchise owners. Describe the 3 components of the fraud triangle and how each would relate to a franchise owner’s likelihood to defraud Vegas Girl’s Pizza.
7. Identify 3 types of fraud to which Vegas Girl’s Pizza may be susceptible. For each of your three responses, indicate whether the fraud is classified as management fraud, employee fraud, vendor fraud, customer fraud, or computer fraud. In addition, for each of your three responses, suggest an internal control that could be implemented to prevent or detect the potential fraud.
