Please enable JavaScript.
Coggle requires JavaScript to display documents.
PAYROLL FUNCTION - Coggle Diagram
PAYROLL FUNCTION
Human Resources
Objective: To ensure that all matters relating to the personnel department are properly maintained. It is important that accurate and complete records for all valid employees are maintained
Documentation
- Employee’s file;
- Payroll amendment forms;
- Updated list of employee details.
Controls
- Interviews conducted with all applicants & the head of the department (HOD) present.
- All appointments & dismissals/resignations authorized & approved by senior official on supporting docs.
- Changes to pay rates, promotions to higher employment grades & any other changes in service conditions
- All changes documented & approved by the authorizing body
- All these amendments recorded on sequentially pre-numbered payroll amendment forms & supported by further docs & authorized & signed by senior management.
- All of the above documents maintained in each employee file. Such as application form, personal details of each employee, letter of appointment, authorization in respect of deductions, employment contracts and payroll amendment forms.
Timekeeping
Objective: To keep an accurate and complete record of valid hours worked for which the company must remunerate employees
Documentation
- Blank clock cards
- Hours recorded on clock
- Batch control sheet & batch register
Controls
Entry & exit points to the work area should be:
- limited to one access point;
- protected by a “turn style” type mechanism;
- supervized during clocking periods.
Clock procedures:
- clocking machine should be situated at entrance/exit to ensure that personnel don't leave premises without clocking in/out;
- supervision over the clocking of employees (prevent employees from clocking in for absentees).
Clock cards should be:
- numerically accounted for;
- issued by HR and prepared from personnel
records/master file;
- stored at clock machine, under supervision, not with the employees).
The foreman should
- keep a record of personnel present & time worked;
- sign clock cards as evidence of approval of hours worked by the employee. 3. have his/her clock card should approved by a senior official (eg. factory
manager).
Overtime should:
- be authorized according to company policy by factory manager/foreman.
- foreman’s overtime authorized by factory manager.
Payroll Preparation
Objective: To calculate gross wages, deductions from employees (which must be paid over to the relevant authorities) and net wages.
Documentation
- Clock cards;
- Updated list of employees;
- Payroll (wage journal);
- Week to week reconciliation.
Controls
The wage rates, deductions - obtained from personnel records or master files
-
-
Before payments can be authorized, senior personnel should inspect payroll & the week to week reconciliations performed
-
-
-
-
General controls
- Supervision and review by management;
- Segregation of duties;
- Rotation of duties;
- Personnel take leave regularly;
- Internal audit function;
- Sufficient stationery control;
- Scrutinize all records and documents for extraordinary/unusual items;
- Test castings and calculations on all selected items, documents and ledger accounts.
-
Test of Controls
Completeness:
Surprise attendance of wage payout - verify validity of employees on payroll. Observe collection. Inspect clocking in policy. Enquire level of segregation
Validity & Authorization:
Inspect payroll for signature - senior official proof of review. Inspect docs (employee files)
Accuracy:
Compare payroll run samples with wage cheque iro deductions. Inspect for 2 signatories - evidence of review & authorization
Recording:
Select samples of recorded hours - match to clock card. Match wage rates + deductions to personnel records. Re-perform all castings & calcs etc.
Cut off:
Inspect policy on when liabilities are raised & paid. Inspect whether liabilities are settled timeously. Follow any deviations with management
Substantive Testing
General procedures
- Obtain & document understanding of business
- Evaluate effectiveness of internal control
- Prelim analytics (current vs prior year
- Obtain payroll as at YE
- Audit the deductions GL account
- Obtain management representationn letter
Validity/Occurrence
-
Select from ledger acc wrt wages, a number of wage pay-outs and do:
- Test castings in GL acc.
- Prepare wrt each period (week/month) - total wages, deductions, net wages & follow through to payroll
- Test accuracy of payroll by verifying - existence of employees, time worked, wage rates, deductions, test castings etc.
Completeness
-
- Select clock card & follow time worked through to payroll, follow totals of payroll to GL (recorded, classified, cut-off)
- Perform analytical procedures on wages between periods/departments (follow up variances)
- Investigate on surprise basis - unclaimed wages, count the money, agree totals of unclaimed moneys, review unclaimed register, inspect register for timely banking of oustanding wages.
- Review clock cards/pay rolls for abnormal items & investigate
Weakness:
A weak control environment exists when there are no clocking in and out procedures in place & no supervision by a foreman/manager over the process and no security (turnstile, cameras etc) in place
Risk:
Risks a company faces without proper control over clocking in/out procedures are employees can clocking in for someone not physically present at work. They can also clock/log incorrect times as a result of no supervision & security that will lead to an inflated payroll and as a result risk earning less profit.