Payroll And Personel Cycle Flashcards
What does the payroll & personel cycle deal with?
•The payment of salaries and wages
•Calculation of overtime and bonuses
What are the unique characteristics of the payroll & personel cycle?
•Major expense -Many companies spend more than 60% of their budget on salaries
•Involves cash -Many companies still pay wage earners by cash
•Internally generated transactions -Calculation of overtime & amount payable is done within the business
•Continuity of operation -Salaries cannot be sacrificed, they have to be paid in time & accurately
•Vulberability to fraud -Ficiticious hours can be calculated
•Major risks within the cycle -Auditors may fail to detect material overstatement of salaries
What are the characteristics & basic functions of the payroll & preparation cycle?
- Personel/HR: Deals with all aspects of HR
- Timekeeping: Deals with accurate record of hours worked
- Payroll preparation: Calculates the actual amount each wage earner is to receive
: Calculations that constitute gross wage are done & relevant deductions are made - Payment preparation & payout: Responsible the transferring the amount owed to employees
:Hands out cash to employees & ensures wage earners sign for this & payment advice is provided - Unclaimed wages: Responsible for recording & administering all unclaimed wages. Enter them into a register for safekeeping
- Deductions: Responsible for paying over all the amounts deducted from employees to the relevant bodies & complete the correct documentation
Documents used in the payroll & personel cycle?
•Employment contract
•Payroll amendment form: Used to detail authorise changes regarding workers
•List of employees: Lists all valid employees as captured by personel department
•Clockcard: Records hours worked per employee
•Batch control sheets & batch register: Identifies & control movement of batches of clockcards
•Deduction tables & returns: Returns provided by entities to which deductions from employees are paid over
•Payroll: Lists all employee names, work section, overtime, & hours worked
•Pay packets, payslips, salary advice: Pay packet➡️Wage paid to employees
:Salary advice➡️ Notifies employees of how their remuneration was made up
•Unclaimed wage register
•Wage/salary reconciliation: Records all reconciliations for the week wages & that of the previous week to establish differences
What are the control activities for the “Personel/HR” in this cycle?
- All requests for appointment/dismissal of employees should originate from the section making the request.
- Request should be signed by the section head & countersigned by the section manager after reference to the budget. Specifications of the position & skills required will be agreed by the section & personel department.
- Changes to pay rates, promotions to higher employment grades, & any other changes in service conditions, should be decided by personel department/wage committee after: due consultation with interested parties
: Consideration of relevant laws & regulations - Such changes should be documented & authorised by the authorizing body
- All amendments to employees details arising from 1-4 above, should be promptly committed to sequenced payroll amendment forms which should be cross-referenced to the supporting documentation & authorised by senior member of the personel section ( From time to time the file of PAF’s should be reviewed for validity & gaps in sequence).
- Sound personel practices should be followed to obtain honest, competent personel.
- A file should be kept for each employee & should include: Copies the relevant PAF’s
: The employment contract
: Performance appraisal & disciplinary warnings
: Personal details including qualifications & background - Pre-printed, properly designed clockcards should be prepared for each employee on the valid employee list. Blank clockcards should be subject to strict stationary controls
What are the risks in the “Personel/HR” function for this cycle?
- Recruiting/retaining unsatisfactory/unnecessary employees
- Incorrect dismissal procedures
- Unauthorized amendments to employeee records: Fictitious additions
: Unauthorized changes in wage rates - Inaccurate/incomplete records
What are the control activities in the “timekeeping” function of this cycle?
- Entry & exit points in the work area to be : limited
: Protected by a “turnstile” type mechanism
: Supervised during clocking periods - Clockcards to be prepared by the personel department, strictly in terms of the authorised employee list, & placed on racks at the entry point.
- At the end of the wage period, the section administration clerk should collect all clockcards for the period and: agree number of cards to list of employees in the section
: Calculate ordinary time
: Calculate overtime
: Divide cards into workable batches
: Complete batch control sheet by •entering batch identification
•entering control totals, total hours,& overtime
•signing to acknowledge responsibility - Before the batch of clockcards is transferred to payroll preparation, the section head should: check calculations
: Authorise overtime
: Check, & sign the batch control control sheet - Details of the batch should be entered in a batch register, which will accompany the clockcards to payroll preparation
What are the risks in the “timekeeping” function of this cycle?
- Invalid hours recorded by: Clocking a card for a Fictitious employee
: Employees clocking for absent fellow employees
: Employees clocking in & leaving the premises - Hours on a clockcard incorrectly calculated for normal/overtime : normal hours counted as overtime hours
What are the control activities in the “payroll preparation” function in this cycle?
- On receipt of the batch of wage cards from timekeeping, the wage clerk should check details of batches received, & sign the register to acknowledge receipt of the batches.
- The wage clerk should prepare*the payroll
*A coinage schedule
*A reconciliation of the difference between the prior periods wages & the current periods wages for the number of employees & amounts for net wages & deductions - A supervisor/ 2nd wage clerk should* verify hours & rates used in compiling the payroll against the clockcards & the employee list
*Verify deductions against relevant tables
*Verify amendments to the payroll against PAFs & vice versa
*Reperform calculations & the wage reconciliation
*Sign the payroll - The head of payroll preparation should carefully review & sign the payroll & period to period reconciliation
- The cheque for wages should be presented with the payroll & period to period reconciliation, to 2 check signorities who should:* review the payroll for unusual items
* Inspect the presence of control signatures
* Sign the payroll & reconciliation
What are the risks in the “payroll preparation” function in this cycle?
- Inclusion of Fictitious employees
- Use for incorrect/unauthorized pay rates, hours/deduction tables
- Cast & calculation errors
What are the control activities in the “payment preparation & payout” function in this cycle?
- Wage packets should be made up by two wage department members
- On delivery of the payroll & paypackets to a section, the section head should:* agree the number of paypackets to the payroll
* Agree control totals
* Sign the payroll to acknowledge receipt - The paypackets & payroll should be locked away until payout
- The wage payout should be conducted by at least two employees. E.g an independent paymaster & the section foreman, both to be present at all times
- Employees should:* present identification
* Acknowledge receipt of their wage packet by signing the payroll
* Count their cash & immediately report any descripencies to the paymaster. These should be recorded on the payroll - In principle, employees should not be allowed to accept a paypacket on behalf of another employee.
- At the conclusion of the payout, the paymaster & foreman who have the payout should:* agree all unclaimed paypackets to the payroll
* Identify clearly on the payroll, all employees for whom there is an unclaimed packet.
* Enter details of unclaimed wages in an unclaimed wage register
*Sign the payroll to acknowledge this control procedure - The unclaimed paypackets & payroll should be retained by the paymaster who should lock them away
- When employees wish to collect their unclaimed wages, they must identify themselves to the paymaster & acknowledge receipt of their paypackets by signing the unclaimed wage register.
- Regular independent reconciliations of unclaimed paypackets on hand & the unclaimed wage register should be performed & the unclaimed wage register reviewed for unusual occurrences
- Any wages remaining unclaimed after 2 weeks, should be banked & a copy of the deposit slip attached to the unclaimed wage register & cross-referenced to the relevant entities
What are the risks in the “payment preparation & payout” function in this cycle?
- Errors/theft of cash during:
*Drawing of cash
*Making up for paypackets
*At the payout - Misappropriation of unclaimed wages
What are the control activities in the “Deductions” function of this cycle?
- Isolation of responsibility to one employee for raising & paying over deductions.
- A strict monthly schedule for:
* Posting the entries to raise the liabilities for the deductions
* Making the necessary payments on a timeous basis, & conducting
* Supervisory checks on the above activities - The payroll and return forms should be presented to signorities for their scrutiny before the deduction cheques are signed. They should check the return carefully to see that it has been accurately & properly filled in
- Independent timeous scrutiny of the general ledger accounts for deductions to confirm that they are being promptly cleared, should be carried out by the financial accountant
What are the risks in the “deductions” function of this cycle?
- Penalties due to non-payment, late payment or underpayment
- Criminal/civil charges due to non-payment
- Incomplete, inaccurate amounts paid over
- Return forms incorrectly completed.
