Payroll

Published on June 2016 | Categories: Documents | Downloads: 87 | Comments: 0 | Views: 472
of 18
Download PDF   Embed   Report

Comments

Content


Internal Audit
Report on the
Audit of
Payroll
System
Table of Contents
1.0 Backround
!.0 Introduction
".0 Audit #b$ecti%es
&.0 Scope of Audit and 'ethodoloy
(.0 Audit )indins
*.0 Conclusion
1.0 Backround
The '+I employs approximately 1,000 individuals and, in 2010, the institute paid
these employees over Rs 382 million. The finance Department of the '+I has the
overall responsibility for payroll processin. !taff in the payroll section administer,
control, and coordinate the monthly payroll cycle.
" payroll refers to the amount paid to employees in respect of #aes and salaries
for services they provided durin a certain period of time. The primary
mission of the payroll department is to ensure that all employees are paid
accurately and timely #ith the correct #ithholdins and deductions, and to
ensure the #ithholdins and deductions are remitted in a timely manner. This
includes salary payments, tax #ithholdins, and other deductions
!.0 Introduction
Payroll System
" payroll system uses a computer to calculate the #aes of each employee, print
out pay$slips and record the information for accountin purposes. "t the end of
each pay period, businesses need to pay their employees.
The payroll system embraces the follo,in-
a% &aintenance of payroll'
b% "uthori(ation of hours #or)ed'
c% *ayroll preparation'
d% Distribution of pay'
e% *ayroll approval'
f% +he,ue sinin' and
% -dentifyin liabilities to third parties for payroll costs and payin these #hen
due.
3.0 Payroll Audit #b$ecti%es
The Internal Audit ob$ecti%es in relation to the audit of the payroll are to
ensure that payroll processes
.1% are ade,uately controlled,
.2% operate efficiently and effectively, and
.3% result in accurate pay and deduction calculations.
and also to ensure that-
.a% only valid employees are paid at the correct and authorised rate'
.b% the calculations of all payments and deductions are correct and in accordance
#ith the relevant reulations and re,uirements'
.c% all deductions are correctly calculated and accounted'
.d% unauthorised access to the payroll system and data is prevented'
.e% all payroll transactions are accurately reflected in the accountin system'
.f% reular and accurate manaement and statutory information is produced and
.% the -nstitute is follo#in all statutory la#s and reulations.
&.0 Scope and 'ethodoloy
The -nternal "udit Department conducted its field#or) from /anuary to December
2010. -t focused its audit #or) on hiher$ris) core payroll activities, includin the
ne# hires, terminations, the processin of overtime and the monthly payroll cycle.
To accomplish its ob0ectives, the -nternal "udit Department revie#ed payroll$
related documentation, intervie#ed 1inance staff, and met 2R staff to understand
the methods used to record and submit payroll information. Durin the field#or),
#e surveyed all ne# employees hired in 2010 #ho #ere still employed at the
-nstitute to solicit their payroll$related experiences. 3e also met #ith "ccountant
to discuss about automation issues
(.0 Audit )indins .+eneric/
(.1 Recurrent 0stimates
The recurrent estimate of the mahatma 4andhi -nstitute .&4-% is divided bet#een
the !econdary !ector and the Tertiary5+ultural sector .includin +entral
"dministration% and is financed as follo#s6.
'+I Recurrent 0stimates !011
1i%ision 0stimates appro%ed
by )inance
Committee .Rs m/
Appro%ed
+o%t +rant
.Rs m/
'+I o,n funds
.Rs m/
!econdary 227.8 229 1.8 m
Tertiary and +ulture
.-nc +entral
"dministration%
188.8 187.1 12.8 m
Total :29.8 :11.1 1:.; m
#bser%ations
• !ince the rant received from the 4overnment #as reduced the -nstitute has
to curtail its expenses and use its o#n funds amountin to Rs 1:.; m to
finance its recurrent <udet.
• 3ith the introduction of the *roramme <ased <udetin 1rame#or)2 the
4overnment has already informed the institute that the rant in respect of
1inancial =ears 2012 and 2013 #ill also be reduced.
Recommendations
• !taff costs #ill continue to increase annually, therefore, is hih time that the
-nstitute ta)es the necessary actions to control expenses and ma)e use of
funds 0udiciously. there is the need to revie# our budetary frame#or) and
curtail do#n our administrative expenses.
• !teps should also be ta)en to increase the revenues of the institute #hich is
account for some Rs 10 million annually.
(.! Staff costs
#bser%ations
&ore than 80> of the recurrent expenditure of the institute is spent on !taff costs
#hich include salaries, #aes, overtime, travellin and transport and staff #elfare
and the remainin on costs of runnin the institute. &a0or portion of the personal
emoluments costs li)e !alaries, ?nd of =ear bonus' *assae <enefits are fixed
costs to the institute and cannot be avoided as they are reulated by the different
provisions of the *ay Research <ureau. .
Recommendations
a. The personal emoluments component of the recurrent expenditure is on a
very hih side and should therefore be properly manaed' <ecause of the
drastic cut in the rant allocated to the &4- by the central overnment as
from the year 2011, it is hih time that the institute starts stanatin these
fixed costs.
b. &eans and #ays should also be desined to reduce to a minimum the
variable part of personal emoluments li)e overtime, allo#ances 5 part$time
fees paid to employees, travellin and transport expenses.
c. "pplication of the *erformance manaement !ystem in the -nstitute #hich is
considered to be a tool to manae and improve performance at all levels in
an oranisation. The *erformance &anaement !ystem is reconised as an
essential and effective manaement tool and an interated stratey to
achieve better results from the oranisation, teams and individuals by
understandin and manain performance #ithin an areed frame#or) of
planned oals and ob0ectives
d. The -nstitute should conduct a 3ob Analysis as #ell as a 4orkload
Analysis of each department. " /ob "nalysis is a useful techni,ue for
ettin a firm rip on #hat really is important in your 0ob so that you are
able to perform excellently. /ob analysis involves6
i.
@nderstandin and areein ho# to achieve pea)
performance in your 0ob'
ii.
?nsurin that you and your boss aree on the areas you
should concentrate on #hen time ets tiht' and the areas
that can be de$emphasi(ed durin this time' and
iii. &a)in sure that you have the resources, trainin and staff
needed to do a ood 0ob.
e. -ntroduction of the ?lectronic "ttendance !ystem to inculcate the
f. ?xplorin the possibility of Recruitin more employees on contract etc
(." Payroll and Accountin System
The pro0ect for the computeri(ation of the financial manaement system of the
&ahatma 4andhi -nstitute #as financed by the Tertiary ?ducation +ommission and
consisted of the implementation of the follo#in modules6
a% Aracle 1inancials
b% Aracle *urchasin and -nventory' and
c% 2uman Resource &anaement !ystem .2R&!%
#bser%ations
Due to the difficulties encountered in the preparation of the 1inancial !tatements
and also follo#in of the decision of the Tertiary ?ducation +ommission not to
continue #ith the +omputerisation *ro0ect .1inancial Aracle/ #ith the !tate
-nformatics Btd, the &4- has stopped #or)in on Aracle 1inancial and reverted
bac) to the manual system and has instead adopted the ?xcel *roramme
.spreadsheets% for capturin, analy(in and interpretin financial data pendin the
ac,uisition of an accountin pac)ae.
5imitations of the manual payroll system
The manual payroll system is an inexpensive method of performin the payroll
process. 2ours #or)ed, taxes and voluntary deductions, such as :01) and health
benefits, are calculated by hand. +hec)s are manually typed, increasin the
potential for errors. There are no computeri(ed payroll reports available, so the
employer has to create his o#n report system. Thouh the start$up cost for a manual
payroll system is lo#, the conse,uences can be reat. ?rrors in tax computation can
also occur as a result.
Possible Problems ,ith spread sheets
a. 6o sereation of duties
The excel proramme does not provide for sereation of duties #hich is
one of the most important component of internal control. -n addition, there is
no inbuilt internal chec) in the system #hich ma)es the system unreliable
b. 5ack of Security o%er data
There is lac) of security over data stored in excel format. 1iures can be
amended by unauthorised access to the computer #ithout the possibility of
identifyin the user.
c. Time consumin acti%ity
The annual budetin process usin the spreadsheets involves a hue
investment of time, much of #hich is spent coordinatin #ith line heads of
departments, #ho typically see little benefit, because the results are usually
an outdated budet that has little impact on the companyCs business.
Recommendations
4iven the si(e and the structure of the institute, there is the urent need to ac,uire a
ne# "ccountin !ystem #hich #ill meet the re,uirements of the orani(ation. -t is
hih time to desin and implement a computerised system to encompass finance
and 2uman Resource functions. " computeri(ed payroll system #ill allo# the staff
in the 1inance Department to enter data and information relatin to the preparation
of the payroll into the system. The payroll is processed throuh the system and the
manaement has access to a #ide variety of tailor made payroll reports can be used
to double$chec) all the information processed. This allo#s to correct any
detectable errors beforehand.
Benefits of a sound computeri7ed and accountin system
" comprehensive computeri7ed and accountin system #ill help to sa%e both
time and money more specifically, it #ill help the -nstitute to6
i. Store information systematically and accurately.
ii. 4et access to financial information at any time. The -nstitute #ill be able to
compare its current financial status #ith information from previous months,
and so ain a useful overvie# of the direction in #hich your -nstitute is
headin.
iii. Impro%e in%oicin system D ood accountin soft#are #ill help the
-nstitute by not only enablin faster and more efficient invoicin, but also by
allo#in the -nstitute to trac) its invoices more effectively.
iv. Trac) and keep ood record of all recei%ables and customers. -t #ill help
the -nstitute to stay up to date #ith overdue payments, and even enerate
payment reminder letters for the -nstitutesE customers.
v. Calculate ta8es 9uickly and efficiently. -n addition the -nstitute #ill be
able to compare the current yearEs tax #ith the previous yearEs tax amount,
#hich #ill ive the -nstitute valuable insiht in terms of #hat to expect for
the next year.
(.& :;'A6 R0S#;RC0 'A6A+0'06T S<ST0'
The &ahatma 4andhi -nstitute initiated the computerisation pro0ect in the late
nineties and the 2uman Resource &anaement !ystem .2R&!% at the &ahatma
4andhi -nstitute dates bac) to year 2000. The implementation pro0ect #as initiated
by Tertiary ?ducation +ommission .T?+% for all T?-Es.
3hile the proramme is #or)in satisfactorily in the 1inance !ection, the
?stablishment !ection is encounterin much problems in retrievin data and
eneratin reports. The system is no loner respondin to our needs.
#bser%ations
The system is no loner respondin to the needs of the &4-. &any modules are
not #or)in
Some problems encountered ,ith the current :R'S system are as follo,s-=
1% Beaves cannot be computed .Facation, !ic), +asual, *assae benefits%
2% Reports concernin !taff Bist sho# all staff .even those #ho have retired,
resined, etcG%
3% 1ields cannot be chosen #hen printin reports H reports cannot be customised
:% Iualifications are too tideous to input and have not been input up to no#.
9% Reports concernin seniority should be included.
7% "ll Reports have to be do#nloaded into ?xcel 1ormat.
Recommendations
Ta)in into consideration the above shortcomins, it is recommended that the &4-
uprades its computerisation system for human resources manaement or ac,uires
a ne# system that can be interrated #ith the system of 1inance Department.
"n 2R& system enerally supports personnel manaement, benefit manaement,
payroll manaement, trainin manaement, #or)force manaement, and health
and safety administration. &any systems support employee self$service
functionality as #ell. These systems support human resources .2R% personnel by
automatin much of the #or).
Benefits of :R'S
• "utomate the processes of 2R departments.
• *rovide a sinle point for easy access to employee profiles.
• Arani(e and increase the efficiency of 2R processes.
• -mprove recruitment processes.
• "ccurately administer career development.
• ?nsure efficient #or)force deployment.
Audit )indins .Specifics/
#%ertime payment to +eneral Staff
#%ertime .extra$duty pay% is defined as time #or)ed by an employee in excess
of the standard daily or #ee)ly hours of #or) and for #hich the employee may
be entitled to compensation. Avertime #or) should be approved prior to the
employee #or)in the extra hours. @pon completion of the overtime #or), the
employee completes the overtime form to claim compensation for the time
#or)ed. Avertime is additional compensation that an employer must pay #hen
an employee in an overtime eliible position #or)s beyond a specified number
of hours in a desinated period of time as specified in the applicable. "ccordin
to the recommendations of the *ay Research <ureau, an employee may be paid
in terms of cash or compensatory time off in lieu of payment.
08penditure incurred in respect of o%ertime ,as rouped as follo,s-
0stimates
!011
Re%ised
0stimates !010
0stimates
!010
Secondary 0ducation 190,000 188,000 190,000
Tertiary 0ducation and
culture
3,000,000 3,99:,000 2,900,000
Total 3,190,000 3,;93,000 2,790,000
#bser%ation
a% Durin year 2010, an amount of Rs 3,;93,000 has been spent on overtime aainst
the budeted estimates of Rs 2,790,000 i.e. an increase of :1.7>.
b% " scrutiny of overtime payments for the months /uly to December 2010 revealed
that several officers #ere earnin overtime each month to the near e,uivalent of
#hat they earned as basic salary.
#%ertime to dri%ers
c% T#o drivers are responsible on a roaster basis for the conveyance of the part time
+hairman in &4-Es vehicle. "s per council decision transport facilities is provided
to the part time +hairman for attendin official functions and also to attend to
meetins at the &4-. An some occasions the car #as used by the +hairman to
attend functions on !undays from mornin to very late at niht. -t #as not possible
to ascertain #hether the trips performed #ere official ones
#%ertime performed by staff of )inance Section
d% " scrutiny of overtime #or) performed by staffs revealed the follo#in6
Avertime #as performed amon others by the 1inance !ection in connection
#ith the +losin of "ccounts for the year endin 31 Dec 2010 and for the
preparation of payroll for /anuary and 1ebruary 2011as follo#s
i. In connection ,ith the preparation of payroll=Reduction in the number of
#or)in days due to the fact that many public holidays #ere fallin on #ee)days
durin the months of /anuary and 1ebruary 2011.
ii. In connection ,ith closin of accounts, the reason for overtime #as the
realinment of the financial year #ith the calendar year.
The list of public holidays of the forthcomin year are made public several months
before the end of the financial year, so officers should prepare their schedule of
#or) #ell ahead based on the available number of #or)in days for a particular
month.
-n budet 200852008, 4overnment too) the decision to realin the financial year
#ith the calendar year, hence officers involved in the preparation of 1inancial
!tatements #ere a#are beforehand that this chane #ould have some bearin on
their schedule of #or) especially #ith the end of year activities and hence they
should have planned their #or) accordinly.
2ad there been any proper arranement and schedulin of #or), overtime #or)
could have been avoided. -t is clear that the #or) of the finance section is not
bein planned properly.
Recommendations
i. The institute is facin an acute reduction in its rant and so appropriate
plannin of #or) should be underta)en. 2ence there is the need to exercise
strict control over the expenses of the institute.
ii. Avertime #or) should only be resorted to only in exceptional cases and
#henever emerencies arises
iii. Documentary evidence should be attached #ith the JRe,uest for TransportK
to support official trips bein performed
i%. "ll JRe,uest for TransportK should be approved prior to trips bein
performed so that a proper plannin of trips can be made by the officer in
chare of transport section .
%. Avertime #or) should be e,ually shared bet#een all the drivers of the
-nstitute
%i. Ta)in into consideration the above shortcomins, it is hihly recommended
that the &4- implements a ne# computeri(ation system for financial
manaement and human resources manaement and budetin.
%ii. -t is hih time to accelerate the process to implement the ?lectronic
"ttendance !ystem #hich #ill help combat both tardiness at the beinnin
of the #or)day and after lunch brea)s and also early leavers. !ome
employees have developed a pattern of tardiness both at the beinnin of the
#or)day and durin lunch brea)s #hich hinders productivity and performance of
the officer, the unit and the department as a #hole
Payment to Allo,ances
.1/ Actin and Responsibility allo,ances
a% "ctin to the *R< Report, "ctin and Responsibility allo#ances is paid #here no
arranement can be made for the performance of the activities of a vacant post or
absentees and employees are normally called upon to perform additional duties or
shoulder hiher responsibilities #herever manaement re,uires temporary cover
,uic)ly for the smooth runnin of the orani(ation.
a) "ccordin to pararaph 18.10.11 of the *R< Report the ,uantum of actin
allo#ance payable, #hether in a rade$to$rade or class$to$class situation, should
represent the difference bet#een the initial or flat salary of the hiher post and the
substantive salary of the officer or three increments #orth at the incremental point
reached in the substantive post .to be read from the master salary scale% #hichever
is hiher, provided the total emoluments of the officer is not less than the initial
salary and not more than the maximum salary of the hiher post.
#bser%ations-
a% -n some cases, the actin allo#ance paid has been calculated as follo#s' the
difference bet#een the initial salary plus compensation of the hiher posts and the
substantive salary of the officer i.e. salary compensation has been included in the
salary of the hiher posts instead of the initial salary of the posts. This represents
an overpayment made to the officer.
b% -n certain cases the number of days ta)en to compute the daily salary is ta)en
either as 31 days or as 30 days, hence there is a
Recommendations
a% There is the need to recalculate the actin allo#ances and ta)e the necessary
actions to recoup the amount overpaid to the officers.
.!/ Adhoc allo,ances
" library cler) #as called upon to replace a teachin staff from 1: /anuary 2010 to 27
1ebruary 2010. !he #as paid an adhoc allo#ance of Rs 8:3:.29 representin the
difference bet#een the ross salary of the officer and the initial salary of the hiher post.
#bser%ations-
-n a letter dated 1: /anuary 2010 the officer #as informed that she #ill be assined the
hiher duties as from1: /anuary 2010 that is on the same day. The letter #as dispatched
on the 19
th
of /anuary 2010 and on 21 /anuary 2010 the officer informed the institute that
she areed to the assinment of hiher duties. The officer has been paid the adhoc
allo#ance as from1: /anuary 2010 that if #ell before acceptin the offer.
Recommendations
a% "ccordin to the 1inancial &anaement &anual, no salaries or allo#ances should
be issued in respect #ithout proper authority. "uthorisation and approval are )ey
elements of control in any control system.
b) "ny disbursement should be made only after approval of manaement and an
acceptance letter from the officer concerned.
."/ 5ea%e ,ithout pay
"ccordin to the PRB R0P#RT !00>2 the rant of leave #ithout pay to officers is
sub0ect to the interest and exiencies of the *ublic !ervice and is at present applicable
exclusively to officers holdin a substantive appointment except for leave ta)en
follo#in confinement. Beave #ithout pay is ranted for multiple purposes.
#bser%ations-
i. Afficers at the &4- usually avail of this opportunity to ta)e up employed either in
the public sector or in the private sector such officers usually have to #ait for
several months before obtainin the approval of the leave as the process is lenthy
since the officers have to et the approval of their head of section, then the
approval of the staff committee and finally the approval of the council.
ii. *endin the approval of the council, the officers are ranted leave #ithout pay on
a month to month basis by manaement #hich is sometimes extended for several
months.
iii. "ccordin to The *R< Report officers should proceed on after same has been
approved by the relevant supervisin officer. -n such circumstances the leave
ranted to the officers concerned should be considered as unauthorised leave as
they proceed on leave #ithout the formal approval has been obtained.
Recommendation
Afficers should only avail of such facilities only after approval of the council is obtained
&anaement should "pplication for such type of leave should be made #ell in advance
so that manaement can process files in due time. Anly in exceptional cases to be
determined by manaement can consideration be made to applications not respectin the
prescribed delay.
"pproval for leaves is the day to day administration #or) and should be deleated to
manaement.
Car loan
#%er%ie,
a% @pon receipt of an application for car loan toether #ith a ,uotation for a
particular car from a staff member, &4- certifies same before for#ardin it to the
&inistry of ?ducation or &inistry of Tertiary ?ducation, #hich then releases the
relevant sum into the &4- ban) account via e$ban)in
b% "n areement is sined bet#een the staff member and the officer in chare of the
&4-, prior to &4- issuin a che,ue to the former. Then recipient is then re,uired
to submit oriinal of all documents .2orse po#er, statement from insurance
company% #ithin one month thereafter for verification purposes
#bser%ations
a% -n some cases the officers concerned do not submit the relevant documents to the
finance section.
b% 4iven that the fact that the sum advanced to the officers as car loan is based on the
,uotations submitted by the suppliers, the audit department #as not in a position to
ascertain that Lthe sum advanced has been actually disbursed.
Recommendations
1.0 Conclusion
2.03e believe the -nstitute needs to fundamentally redesin its payroll$related
processes. !pecifically, the -nstitute should move much of the responsibility
for data input from the payroll section to areas closer to the data source e.
the 2R Department. <ecause staffs in other areas already enter the
information either manually on a form or into spreadsheets or other
electronic documents, #e do not believe this chane #ill create any
additional administrative burden. The -nstitute should also revie# additional
automation options to further streamline the current processes and rely more
on the payroll application, and not on ancillary spreadsheets, to control data
accuracy. "s part of this redesin effort, the -nstitute should also strenthen
automation controls related to separation of duties and should ensure that all
payroll$related policies and procedures are properly documented.
4e recommend to increase the use of automation to allo, employees to directly
update more information in the Institute?s payroll application.
Automation
&4T staff told us that they are currently loo)in at options to enhance the self$
service capabilities #ithin e$*ersonnel to allo# employees to enter basic 2R and
payroll information online.
Durin our audit, #e also found that employees #ho #ish to chane their direct
deposit account information are currently re,uired to submit a hard copy form to
payroll staff, #ho enter the information into the payroll application after manually
verifyin the accuracy of the financial institutionCs routin number. &ost <an)s
have implemented online self$service functionality permittin employees to update
direct deposit account information.
Throuh the use of a third$party soft#are product, the online functionality also
allo#s for an automatic verification of the financial institutionCs routin number.
3e believe that the <oard should implement this functionality as an additional e$
*ersonnel enhancement.
To process premium pay transactions, #e found that division staff prepare different
documents in different formats, #hich are sent to payroll so that information can be
entered into the payroll application.
The :R 10PART'06T
Their activities include enterin data for ne#ly hired employees, chanin existin
employee data that may affect pay, and recordin and payin overtime and other
premium pay #hen #arranted. !eparate staffs #ithin &4T have responsibility for
related processes such as benefits and compensation.
&ost information is entered into the payroll application by &4- staff, althouh
information may be entered by divisions or entered by individual employees
throuh a #eb$based interface. This interface .referred to as e$*ersonnel% allo#s
employees to chane tax #ithholdin information and to elect or chane benefit
options durin the annual benefits open enrollment period.
)indins2 conclusions and Recommendations
Averall, #e did not identify sinificant data errors in our testin, #e did find,
ho#ever, that the -nstitutes payroll processes are inappropriately controlled, relyin
more on people than processes to pay the -nstitute staff. "s a result, payroll$related
activities are labor$intensive and inefficient, characteri(ed by multiple data
transcriptions, unnecessary document hand$offs, and redundant record)eepin.
3e also found inade,uate separation of duties #ithin the payroll section, a lac) of
verification of payroll amounts prior to disbursement, and incomplete policies and
procedures overnin the payroll processes. 3e also identified opportunities to
increase the use of e$*ersonnel to further streamline transaction processin.

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close