CHAPTER 8 HUMAN RESOURCE BUSINESS PROCESS

(THE PAYROLL PROCESS)

AFTER STUDYING THIS CHAPTER YOU SHOULD BE

ABLE TO:

1. IDENTIFY THE MAJOR ACTIVITIES OF THE

HUMAN RESOURCE BUSINESS PROCESS

2. EXPLAIN HOW EMPLOYEES ARE HIRED,

ASSIGNED DUTIES, AND PAID

3. ****DESCRIBE THE FLOW OF TRANSACTIONS

THROUGH THE HUMAN RESOURCE PROCESS

4. ****SPECIFY THE PRINCIPAL MASTER AND

TRANSACTION FILES IN THE HUMAN RESOURCE
PROCESS AND EXPLAIN THEIR CONTENT AND USE

5. ****IDENTIFY THE PRINCIPAL DOCUMENTS AND

REPORTS IN THE HUMAN RESOURCE PROCESS
THE HUMAN RESOURCE PROCESS IS
1
CONCERNED WITH THE PROCUREMENT OF
EMPLOYEE RESOURCES BY THE
ORGANIZATION -

INCLUDES ACCOUNTS PAYABLE

PERSONNEL
PAYROLL
CASH DISBURSEMENT
COST ACCOUNTING
APPLICATIONS

INCLUDES COST ACCOUNTING - INTERFACES

WITH PRODUCTION (INVENTORY)
PROCESS

CASH DISBURSEMENTS - INTERFACES WITH

THE FINANCING PROCESS

2
DATA STORAGE, INPUTS, AND OUTPUTS
IN THE HUMAN RESOURCE PROCESS

MASTER FILES
1. EMPLOYEE MASTER FILE
.EMPLOYEES= WAGE RATES AND SALARIES
.DATA ON MARITAL STATUS AND NUMBER OF
DEPENDENTS--A PAY RATE FILE MAY BE USED
HERE ALSO
.DATA ON ACCRUED EARNINGS, DEDUCTIONS,
FRINGE BENEFITS
.EACH RECORD CORRESPONDS TO AN
EMPLOYEE
.TERMINATIONS HANDLED AT YEAR END TO
RETAIN INFO NEEDED FOR TAX PURPOSES
.ORDERED ON EMPLOYEE#, WHICH MAY BE
SS#

2. ADDITIONAL MASTER FILE MAY BE USED TO

HOLD TAX INFORMATION, TAX TABLE FILE (A
REFERENCE FILE)

3. GENERAL LEDGER MASTER FILE--FOR

POSTING OF GENERAL LEDGER ACCOUNTS

3
TRANSACTION FILES

1. PAYROLL TRANSACTION FILE

.DATA ON EMPLOYEES' SERVICES
.COMPUTED TAX WITHHOLDINGS AND OTHER
DEDUCTIONS WRITTEN TO RECORDS IN THIS
FILE PRIOR TO PREPARATION OF CHECKS
.MAIN PURPOSE TO ACCUMULATE DATA ON
HOURS WORKED AND OTHER INFO NEEDED TO
PREPARE THE PAYROLL
.PAYROLL TRANSACTION FILE IS POSTED TO ....?

PAYROLL DATA INTERFACES WITH THE INVENTORY

(CONVERSION) PROCESS

2. GENERAL LEDGER TRANSACTION FILE

INPUT DOCUMENTS

1. TIME CARDS, SHEETS, TICKETS OR COMMISSION

VOUCHERS
document services provided by employees
provide a basis for the payment of wages,
salaries, or
sales commissions

4
OUTPUT DOCUMENTS

1. PAYROLL CHECKS
drawn on organization's bank account to
disburse cash to employees

2. TAX FORMS, SUCH AS W-2s

REPORTS

1. PAYROLL REGISTER

2. DEDUCTIONS AND WITHHOLDINGS JOURNAL

3. QUARTERLY AND ANNUAL PAYROLL TAX

RETURNS

4. LABOR DISTRIBUTION REPORT

MAJOR RISKS IN THE HUMAN RESOURCES PROCESS

5
1. Risks concerning procurement of employee
services

.wages paid for unauthorized work

.time cards and/or pay checks to fictitious
employees
.wages/benefits to employees who have been
terminated
.errors in pay rates or calculations - under vs. over
stated
.improper accrual of sick leave, vacation, pension
.expense incorrectly classified or charged to wrong
period
.intentional overstatement of employee earnings -
kickback scheme
.deductions/withholdings not recorded but charged
to employee

2. Risks concerning disbursement of cash

.duplicate payments
.checks made out to or sent to wrong payee
.check signature forged - or void notation erased
.improper or illegal check requests or payments
.cash disbursements incorrectly recorded or not
recorded

6
.disbursement and distribution of checks occur in
different periods
.check is made out to unauthorized individual
.manipulation of bank reconciliation to offset
misappropriations against old outstanding checks
CONTROLS

1. ORGANIZATIONAL CONTROLS

segregation of duties in payroll

.segregation maintained between

(1) hiring and setting wage rates
(2) collection and approval of time cards
(3) preparation of paychecks
(4) distribution of paychecks

signing paychecks should be separated from (3)

if number of employees is too small to achieve

proper segregation of duties......

use imprest fund

2. Program and Data Access Controls

user identification codes

passwords - levels of access

7
file and record locks
designated terminal access
data read-write privilege

3. Authorization Controls

to ensure that input data are authorized

proper authorization for capturing and approving

employee time data for disbursing cash.

authority to validate employee services -

time data capture and approval resides
with
employee's immediate supervisor
overtime or special time rates
exception reports of rejected
transactions

authority to disburse cash -

lies with payroll dept. for payroll
disbursements
treasurer has ultimate responsibility

check signing machine & signature

plates
locked

8
4. Data Verification Controls

reasonableness checks - pay rates and hours

positive / negative quantities
supervisory approval is mandatory on all exception
items

5. Processing Controls
a. batch controls
record counts
control totals
cross footings
hash totals
extend throughout processing

b. prenumbered documents - ensure that all

processing is complete

Use prenumbered checks

iventory boxes of blank checks
control check inventory

6. File Controls
protect data from loss, damage, improper
processing
ensure that correct master or table files are
used
file maintenance

9
7. Output Controls
output from system is complete, accurate,
appropriately used
check register
payroll register
check forms
bank reconciliation independent of check
printing
and signing

10