Chapter 15

Chapter 15

The Human Resources Management and Payroll Cycle

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 15-1

Learning Objectives

Describe the major business activities and related information processing operations performed in the human resources management (HRM)/payroll cycle.

Discuss the key decisions to be made in the HRM/payroll cycle and identify the information needed to make those decisions.

Identify the major threats in the HRM/payroll cycle and evaluate the adequacy of various internal control procedures for dealing with them.


HRM and Payroll Cycle

Managing Employees: Recruiting and hiring new employees Training Job assignment Compensation Performance evaluation Discharge of employees due to voluntary or involuntary

termination


HRM and Payroll General Threats

Inaccurate or invalid master data

Unauthorized disclosure of sensitive information

Loss or destruction of data

Hiring unqualified or larcenous employees

Violations of employment laws


HRM and Payroll General Controls

Data processing integrity controls

Restriction of access to master data

Review of all changes to master data

Access controls

Encryption

Backup and disaster recovery procedures

Sound hiring procedures, including verification of job applicants’ credentials, skills, references, and employment history

Criminal background investigation checks of all applicants for finance-related positions

Thorough documentation of hiring, performance evaluation, and dismissal procedures


Payroll Cycle


Payroll Cycle Activities

1. Update master data

2. Validate time and attendance

3. Prepare payroll

4. Distribute payroll

5. Disburse taxes and miscellaneous deductions


Update Payroll Master Data

Internally initiated changes (updated by HR): New hires Terminations Changes in pay rates Changes in withholdings

Externally determined changes (updated by payroll dept.): Tax rates Insurance deductions

Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 15-8

Update Master File Threats

Unauthorized changes to payroll master data

Inaccurate updating of payroll master data


Update Master File Controls

Segregation of duties: HRM department updates master data, but only payroll department issues paychecks

Access controls

Data processing integrity controls

Regular review of all changes to master payroll data


Validate Time and Attendance Data

Time cards

Time sheets


Validation Threats

Inaccurate time and attendance data


Validation Controls

Source data automation for data capture

Biometric authentication

Segregation of duties (reconciliation of job-time tickets to time cards)

Supervisory review


Prepare Payroll

Edit and sort payroll transaction data

Prepare employee paychecks Calculate gross pay Deductions summed and deducted from gross pay to obtain

net pay Categories of deductions:

Payroll tax withholdings Voluntary deductions

Update year-to-date fields for gross pay, deductions, and net pay

Create payroll and deductions registers Print employee paychecks and earnings statement Produce payroll reports


Prepare Payroll Threats

Errors in processing payroll


Prepare Payroll Controls

Data processing integrity controls: batch totals, cross-footing of the payroll register, use of a payroll clearing account, and a zero-balance check

Supervisory review of payroll register and other reports

Issuing earnings statements to employees

Review of IRS guidelines to ensure proper classification of workers as either employees or independent contractors


Disburse Payroll

Accounts payable reviews and approves payroll register

Prepare disbursement voucher to authorize transfer of funds from general checking to payroll bank account

Update general ledger

Cashier prepares check or EFT to transfer funds

Distribute checks or initiate direct deposits to employee accounts


Disburse Payroll Threats

Theft or fraudulent distribution of paychecks


Disburse Payroll Controls

Restriction of physical access to blank payroll checks and the check signature machine

Restriction of access to the EFT system

Prenumbering and periodically accounting for all payroll checks and review of all EFT direct deposit transactions

Require proper supporting documentation for all paychecks

Use of a separate checking account for payroll, maintained as an imprest fund

Segregation of duties (cashier versus accounts payable; check distribution from hiring/firing; independent reconciliation of the payroll checking account)

Restriction of access to payroll master database

Verification of identity of all employees receiving paychecks

Re-depositing unclaimed paychecks and investigating causeCopyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 15-19

Disburse Taxes and Deductions

Calculate and remit payroll taxes and employee benefits to appropriate government or other entity


Disburse Taxes and Deduction Threats

Failure to make required payments

Untimely payments

Inaccurate payments


Disburse Taxes and Deductions Controls

Configuration of system to make required payments using current instructions from IRS (Publication Circular E)

Processing integrity controls

Supervisory review of reports

Employee review of earnings statement


Documents

Chapter 15