Employee Cost (payroll system) Flashcards
Wages?
May very every week, often paid by hour. Overtime is common
Salaries?
Fixed for a year, receive same each month. can do overtime but less common
What is gross and net?
Gross = before any deductions such as pensions and union fees.
Net = amount to be paid to employees after deductions
What are the key elements of payroll system?
- calculating wages/salaries
- recording of wages/salaries and deductions
- payment of wages/salaries
Why are wages and salaries very significant?
They are complicated to record and susceptible to fraud. Often a high risk area and important to the auditor.
What is an example of a calculating risk?
Company may pay employers too much/ pay those who have left - risks
employers only paid for hours worked and gross pay calculated correctly - control objectives
Recording of hours worked (clocking in and out systems) Authorisation of any new started an changes in pay
management should also have appropriate level of staffing and regular checking of wages/salary details to personnel records- controls
confirm that procedures are operating for authorising changes in rates of pay, overtime and holiday pay and inspect evidence that staff are only paid when joined and removed from payroll when leave - test of controls
What is an example of a recording risk?
Amounts paid to the employee might not be reflected in the cash books (Cr) and pay might not be recorded correctly in the nominal ledger (Dr) - risks
Wages and salaries are correctly recorded in the nominal ledger - control objectives
Use of suitably trained personnel/software systems, check payroll system output and compare original input. Bank reconciliation performed - controls
What is an example of a payment risk?
People who aren’t employers paid and employees not paid. Incorrect amount paid to tax authorities - risks
correct employer paid correct amount, and correct taxes paid. - controls
segregation of duties like preparing payroll and packet writing of cheques. prompt banking of unclaimed wages. verification of identity. - control objectives
observe segregation of duties, check for unsuccessful bank transfers, examine signature real and digital - test of controls
Who?
If you see the word clerk this implies someone is very junior, if you see them doing a responsible task it should be a senior so that is an internal deficiency.
What?
is it a good control or is it badly designed?
How?
is it being implemented properly?
When?
Is it being exercised frequently and early enough?
