Payroll Cycle

Question 1

What is the overview of the payroll cycle? (what are the steps/source documents)

Answer 1

1) Employee timecards or job time sheets
2) Record in the payroll journal
3) Post month’s payroll transactions to General Ledger

Question 2

What are the control activities with respect to Separation of Duties for the Payroll Cycle?

Answer 2

Separation of duties (authorization, access, and accounting functions):

• Personnel Department - Responsible for overseeing pay rates and maintains personnel files (including deductions)
• Treasurer’s Department- Issues the checks & distributes the payroll checks (usually to departmental supervisors and distribution to employees)
• Payroll department- Actually prepare the payroll each period (responsible for calculations and record-keeping related to payroll)

Question 3

What are the control activities with respect to controls (physical controls) for the Payroll Cycle?

Answer 3

Access to personnel files should be limited to authorized personnel (these are very sensitive and confidential)

• Access to paychecks should be limited to authorized personnel (and they should be “bonded”)

Question 4

What are the control activities with respect to authorization of transactions for the Payroll Cycle?

Answer 4

Payroll should be approved by management (includes review & approval of management’s compensation)

Overtime should be authorized by management

Question 5

What are the control activities with respect to review (performance review) for the Payroll Cycle?

Answer 5

Appropriate underlying payroll information should be maintained and appropriate comparisons made (including personnel files and payroll records supporting the general ledger)

Paychecks should be reconciled to the payroll register every period

Job-cost manufacturing environment, reconcile job-cost time to jobs

Bank reconciliation should be prepared on timely basis

Question 6

What are the control activities with respect to EDP/IT (information processing) for the Payroll Cycle?

Answer 6

• All focused on PRE-NUMBERED and the numerical sequence should be accounted for

Question 7

Where should unclaimed payroll checks go?

Answer 7

It should go back to the treasurer