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Unit 5: Payroll business cycle, Controls - Coggle Diagram
Unit 5: Payroll business cycle
1. HR Function
ensure that all matters relating to the personnel department are properly maintained.
Internal Control
Conduct interviews
All appointments must be authorised
All changes must be documented
All amendments should be sequentially numbered
All documents should be maintained in employee file
Documents
o Employee’s file;
o Payroll amendment forms;
o Updated list of employee details.
2. Timekeeping function
Controls
Clock cards: numerical & stored at clock machine
Entry and exit points to the work area must be limited to one point, protected & superised.
Clocking machine at entrance/exit and supervised
The foreman should keep records of personnel and sign clock cards
Overtime should be authorised
necessary to keep an accurate and complete record of valid hours worked for which the company must remunerate employees
Documentations
Blank clock cards;
Hours recorded on clock;
Batch control sheet and batch register.
3. Payroll Preparation
aim of this function is to calculate gross wages, deductions from employees (which must be paid over to the relevant authorities) and net wages
Documentations
o Clock cards;
o Updated list of employees;
o Payroll (wage journal);
o Week to week reconciliation.
4. Payment preparation and pay-out
ensure that employees are paid their wages for only the hours which they have worked.
Controls
wage cheque should be signed by two signatories
wages cheque should be cashed at the bank
Make-up wage packets should be done by two wage department members and physical security
Pay-out should be done by pay master
The foreman must identify all employees
Employees should sign payroll as proof of receipt
unclaimed wages and payroll should be retained by the paymaster who should lock them away;
5. Payment and recordings
ensure that these amounts owed to the relevant authorities are correct, paid over within the required period, and are supported by the relevant supporting documentation or return.
Controls
Appointing risk compliance officers.
o Risk management policies.
Documentation
General ledger;
o Payroll (wage journal);
o Cash payments journal;
o Return form.
6. General Controls
Supervision and review by management;
• Segregation of duties;
• Rotation of duties;
• Personnel take leave regularly;
• Internal audit function;
• Sufficient stationery control;
• Scrutinise all records and documents for extraordinary/unusual items;
• Test castings and calculations on all selected items, documents and ledger accounts
Substantive Testing
Obtain & document understanding of the business
Audit the deductions GL account
Obtain management representation letter
Test controls
Inspection (when it is a document)
enquiry (about a control/process/policy)
observation (when it is a process)
Controls
hours recorded on the payroll obtained from clock cards
wage rates, deductions obtained from personnel records
calculations and castings should be reviewed by an independent person
Inspect payroll before payments authorisation
All personnel should sign payroll as proof of functions performed