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Learning Objectives
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Payroll Process
Defined
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What is Payroll?
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Employee Earnings
Determined by agreement between employer and
employee
Salary schedule
Type of position
Steps and years of experience
Employees pay examples:
Annual salary/prorated over pay periods
Hourly rates
Pay periods varymonthly, semimonthly,
biweekly or weekly
FLSA150% regular rate for +40 hours with
certain exemptions Continued on next slide
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Employee Earnings
Time sheet
Basis of periodic payroll
Contents of time sheet
Employee name and number
Pay period
Dates worked
Number of hours worked
Account distribution
Signatures
Employee
Employer
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Payroll Journal
Special Journal
Sometimes call Payroll Register
Common contents:
Name of employee
Expenditure/expense classifications
Gross payroll
Adjustments to gross payroll
Adjusted gross payroll
Net payroll
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Payroll Deductions
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Recording the Payroll
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Recording Employers
Share of Benefits
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Payroll
and Internal
Control
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What Are Internal Controls
Protect Resources
Assets
Employees
Ensure
Accuracy and
Evaluate Reliability
Levels of Prevents/
Performance INTERNAL Detects
I/C Present Errors and
and CONTROLS Misuse
Functioning Financial
Statements
Accurate
Ensure Compliance
State/Federal Law
Requirement
GAAP/GASB Compliance
How Is Internal Control Organized?
Levels of
organizational structure
Components of
Internal Control
Objectives for Payroll
Preapproved/authorized transactions
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Control Environment and P/R
Control environment affects payroll by
establishing protocols:
Published code of ethics communicated with
employees
Personnel hired that possess the knowledge and
skills to accomplish P/R tasks
Employees should be supervised by qualified
personnel
Job descriptions that provide for proper
segregation of duties for responsibility and
authority
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Control Environment and P/R
Control environment affects payroll by
establishing protocols:
Written procedures that cover all phases of
payroll
Adequate training policies that communicate
roles and responsibilities in the P/R area
Management should exhibit commitment for
ongoing training of employees in the P/R area
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Risk Assessment and P/R
Objective No. 1: Authorization
Risks:
Hiring an unapproved employee
Overspending budget
Hiring an unqualified employee
Incorrect classification for benefits could result in
higher costs
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Risk Assessment and P/R
Objective No. 2: Safeguarding Assets
Risks:
Errors in payroll process due to hiring unqualified
employee
Interest and penalties
Fictitious employees added to payroll system
Incorrect employee classification
Leave taken not properly reported
Continued on next slide
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Risk Assessment and P/R
Objective No. 3: Accurate, reliable and timely
information
Risks:
Salary/Pay rate not correct
Hours/pay period inaccurately entered
Deduction entered improperly
Not posted to G/L
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Risk Assessment and P/R
Segregation of duties
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Segregation of Duties
Duties to be Segregated
Approval of new hires
Authorization Approval of pay rates
Signing of checks
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Control Activities for
Payroll
Four Categories of
Control Activities
Hiring
Documentation
Authorization
Reconciliation
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Control Activities for
Payroll
Written process for hiring
Budget approval
Authority to advertise
Appropriate applicant information
Established selection process
Formal job offering (Letter)
Pay rate
Benefits provided
Status
FLSA classification Continued on next slide
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Control Activities for Payroll
Documentationcomplete
the forms
Personal data
Form I-9 (Employment Eligibility
Verification)
Form W-4 (Federal Tax Withholding)
Form G-4 (State Tax Withholding)
Benefit forms
Retirement plan forms
Other forms Continued on next slide
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Control Activities for Payroll
Authorization
Required to ensure that only valid
transactions are entered into payroll system
Time sheets signed by employee and supervisor
Supervisors approval = authorization to pay and certifies
time recorded is actual time worked.
Payroll should be authorized by supervisor
Verify that all supporting documentation is present prior
to approving payroll
Could be manual or electronic approval
Continued on next slide
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Control Activities for Payroll
Reconciliations
Hours worked on time sheets = summary of
hours worked in payroll system
Adjusted Gross Salary - No variations unless
adjustments to pay
Taxable Wages - Adjusted gross wages less
pre-tax deductions
Benefits and Deductions
# of employees
Continued on next slide
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Control Activities for Payroll
Checklist easy way to show
completed tasks
Also need to reconcile general
ledger accounts after
withholdings are paid
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Information/Communication and
P/R
Examples:
Enrollment periods for benefits
Pay periods and dates (cutoff)
Holidays
Furlough days
Personnel policies and procedures
Salary information
Benefits payable due dates
Tax withholding due dates
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Monitoring and P/R
Supervisory activities:
Initial and date face of
reconciliations
Review all changes to employee
information/forms for accurate and timely
posting
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Resources
Internal Control
Committee of Sponsoring Organizations
(COSO)
http://www.coso.org/guidance.htm
Standards for Internal Control in the Federal
Government (Green Book)
http://www.gao.gov/greenbook/overview
GFOA
http://www.gfoa.org/
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www.vinsoninstitute.org