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The Payroll function Unit 5, Auditing 31 Dean Fensham 220015316 -…
The Payroll function
Unit 5
Five functions:
HR function
Timekeeping function
Payroll preparation function;
Payment preparation and payout function;
Deductions: payments and recording function
Accounts affected:
SCI:
Gross salaries;
Wages;
Commissions;
Bonusses;
Manufacturing wages;
Directors' emoluments;
Employer contributions
SFP:
Employees for remuneration accrued;
Accounts payable (Payroll deductions ex. medical aid etc.)
Accounts payable (employer contributions);
Various bank accounts.
Ex. of weakness and risk:
If a company allows their new foreman, who doesn't know all the employees working in the department, to himself complete the wage-packet payouts, this is a
weakness
.
The
risk
of this is that employees could take the wage packets of other employees and claim it for themselves without the foreman even knowing it.
1. HR function
Documents used:
Employees' file;
Payroll amendmant forms;
Updated list of employee details.
Controls to mitigate risks:
a) Interviews conducted with all applicants and relevant HOD to be present;
b) Appointments / dismissals to be authorized by senior official and supporting documentation;
c) Changes to payrates, promotions and changes in service agreements to be decided by HR department after deliberation with unions and regulation checks;
d) Changes to be documented and approved by authorizing body;
e) Amendments recorded on sequentially pre-numbered payroll amendment forms and supporting documentation;
f) Maintain all documents in employee file ex. Letter of appointment, deductions, contracts and payroll amendment forms.
Function:
Ensure all matters relating to personnel dept. are properly maintained. Thus all matters of human capital.
2. Timekeeping function
Documents used:
Blank clock cards;
Hours recorded on clock;
Batch control sheet and batch register.
Controls to mitigate risks
Clock cards must be:
numerically accounted for (sequence check)
Issued by personnel dept. and prepared from master files
Stored at clock machine under supervision.
Entry/ exit points to work area:
Limited to one access point
Protected by turnstile type mechanism
Supervised during clocking
Clock procedures:
machine be located at entrance/ exit preventing leaving of premises
Supervision over employee clocking
Foreman:
Keep record of present personnel
Sign cards as evidence of labour worked
Foreman's clock card authorized by factory manager
Overtime:
Authorized according to policy by senior official
Foreman's OT authorized by factory manager
Function:
Keep accurate and complete record of valid hours worked for which company remunerates employees.
Internal controls and control objectives
General controls
Supervision and review;
Segregation of duties;
Rotation of duties;
Personnel take regular leave;
Internal audit function;
Sufficient stationery control;
Scrutinise all records and documents for unusual activities;
Test castings and calculations done on selected accounts.
Control objective:
Validity and authorisation:
Total wages, deductions and payroll reviewed by senior employee and signed as evidence.
Complete records kept in every employee file.
Control objective:
Completeness:
During payout, employees only collect there own pay-packet and sign as acknowledgement.
NB segregation of duties and documented procedures for employee loans.
Strict and tight clocking controls, payment preparation and payouts.
Control objective:
Accuracy:
HR manager review and authorize payroll after checking:
Total payroll agrees to sum of wage cheque paid over to employee and to authorities.
Control objective:
Recording:
Hours recorded obtained from clock machine or computer file.
Wages and deductions obtained from employee master files.
Calculations and castings reviewed by independent person and signed off.
Before authorizing payments, senior personnel to inspect payroll and weekly reconciliations.
Personnel sign payroll for proof of completed function.
Control objective:
Cut off:
Strict monthly schedule created for:
Entering transactions to raise liabilities for employee deductions.
Completing payments timeously.
Activities to be checked by supervisors
3. Payroll preperation function
Function:
Calculate gross wages, deductions from employees to be paid over to relevant authorities, and net wages.
Documents used:
Clock cards;
Updated list of employees;
Payroll (wage journal);
Week to week reconciliation
Controls to mitigate risk:
Hours recorded on payroll obtained from clock card/ computer file;
Wage rates and deductions obtained from personnel records/ master files.
Calculations and castings reviewed by independent person;
Before payment authorization of payroll, needs inspection by senior personnel and weekly reconciliations needed;
Personnel must sign payroll as proof of function performed.
4. Payment preparation and payout
Function:
Ensures employees paid wages only for hours worked and are paid weekly by cash.
Documents used:
Authorized payroll;
Payroll (wage journal);
Payslips;
Pay-Packets;
Unclaimed wages register
Controls to mitigate risk:
Wage cheque signed by two signatories (1 senior management):
Wages cheque and current + previous payroll and supporting documentation to be presented for authorization;
Senior employee to compare payroll to wages cheque;
Current payroll compared with previous payroll;
Payroll and documentation signed/ stamped as cancelled.
Wages cheque cashed at bank:
two or more people;
Avoid regular times;
Don't travel same route;
Use security company for wage pay-outs.
Wage packet consists:
Done by two wage dept. members with security over cash handling;
Done by independent members not involved with payrol preperation;
Wage details appear on wage-packet;
Wage-packet contents checked independently.
Wage payout:
Done by member not involved with wage make up;
Foreman identifies all employees;
Employees sign as proof of receipt;
Foreman sign payroll as proof of supervision.
Unclaimed wages:
Foreman and paymaster agree all unclaimed pay-packets. Enter employee details in unclaimed wage register. Sign payroll as proof of control;
Unclaimed wages and payroll retained by paymaster and locked away;
Maintain regular reconciliations of unclaimed wages in hand and in register;
After two weeks unclaimed, bank wages and attach deposit slip to register.
5. Deduction: Payment and recording function
Function:
Ensures amounts owed to authorities are correct and paid over in correct period with supporting documentation.
Documents used:
General ledger;
Payroll (Wages journal);
Cash payments journal;
Return form.
Controls to mitigate risk:
Appoint risk compliance officers;
Risk management policies implemented.
Auditing 31
Dean Fensham
220015316