Chapter 15
Content
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.
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-2
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-3
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-4
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-5
Payroll Cycle
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-6
Payroll Cycle Activities
1. Update master data
2. Validate time and attendance
3. Prepare payroll
4. Distribute payroll
5. Disburse taxes and miscellaneous deductions
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-7
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-9
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-10
Validate Time and Attendance Data
Time cards
Time sheets
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-11
Validation Threats
Inaccurate time and attendance data
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-12
Validation Controls
Source data automation for data capture
Biometric authentication Segregation of duties (reconciliation of job-time tickets to time cards) Supervisory review
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-13
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-14
Prepare Payroll Threats
Errors in processing payroll
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-15
Prepare Payroll Controls
Data processing integrity controls: batch totals, crossfooting 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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-16
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-17
Disburse Payroll Threats
Theft or fraudulent distribution of paychecks
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-18
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 cause
Copyright © 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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-20
Disburse Taxes and Deduction Threats
Failure to make required payments
Untimely payments Inaccurate payments
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-21
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-22
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.
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-2
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-3
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-4
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-5
Payroll Cycle
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-6
Payroll Cycle Activities
1. Update master data
2. Validate time and attendance
3. Prepare payroll
4. Distribute payroll
5. Disburse taxes and miscellaneous deductions
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-7
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-9
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-10
Validate Time and Attendance Data
Time cards
Time sheets
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-11
Validation Threats
Inaccurate time and attendance data
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-12
Validation Controls
Source data automation for data capture
Biometric authentication Segregation of duties (reconciliation of job-time tickets to time cards) Supervisory review
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-13
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-14
Prepare Payroll Threats
Errors in processing payroll
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-15
Prepare Payroll Controls
Data processing integrity controls: batch totals, crossfooting 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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-16
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-17
Disburse Payroll Threats
Theft or fraudulent distribution of paychecks
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-18
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 cause
Copyright © 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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall
15-20
Disburse Taxes and Deduction Threats
Failure to make required payments
Untimely payments Inaccurate payments
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-21
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
15-22
