OVERVIEW

The Payroll Cycle is a regular business activity wherein it refers to the length of time

employees log in their attendance, to the time employee paychecks are prepared and handed out

to them and is recorded in the General Ledger by the accountant.

The objectives of the Payroll Cycle include maintaining the employees’ hours and

payments, calculating commissions and bonuses, preparing tax payments for each paycheck, and

printing payroll reports for the master budget and expense budget.

The cycle begins with each employee logging in their attendance on a Biometric System.

The information produced by the system is updated in the Employee Attendance File. The

payroll clerk would then make the necessary requirements in order to produce a payroll

summary. The accountant would review the payroll summary and make a requisition slip for

bank transfer. Both documents are being reviewed and approved by those authorized. Once

approved, the payroll clerk requests the bank for a transfer of funds, makes the payslip and hands

it out to the employees. The cycle would end when the accountant records the transaction in the

General Ledger.

The principal purpose of any payroll department is to pay the employees and remit

associated deductions, taxes, and benefits.

Internal Control Objectives:

1. To ensure proper recording of transactions

2. To ensure payroll transactions are properly authorized

3. To safeguard employee files and records

4. To apply the right payroll procedures

5. To record and credit accurate employee attendance

Internal Controls:

 There must be a written process for hiring employees.

 Job description, duties, and responsibilities must be provided.

 Payroll employees must have knowledge and skills on payroll procedures.

 A biometric system captures employee attendance.

 Employee files and documents must be pre-numbered and filed in order.

 Only authorized employees involved in the payroll process are given the

responsibility to access employee records.

 Authentication codes are used to access records.

 Recording and processing function must be separate.

 Payroll computations must be properly disclosed.

 A Payroll System Software is used to compute for gross pay and deductions.

 Payroll transactions may only be executed if approved by required signatories.

 Adjustments and changes in the payroll system must be made and approved by

authorized individuals.
 All compensation payments are made through fund transfer based on the payroll

summary.

 Finance Manager and Treasurer must approve request for bank transfer.

 Finance Manager and Treasurer approves transactions that involve significant

amounts.

 Payroll checks cannot be generated if not authorized by the Finance Manager and

Treasurer.

 Authorization must be made for overtime hours, unexpected leave, and absences.

 Mandatory benefits are given to all employees.

 Each ((department supervisor)) receives a list of employees to verify accuracy of

amount paid.

 Employee files and payroll records must be password protected.

 Separate individual for preparation, authorization, and creation of payroll.

 Request for change in employee files must be written and signed.

 Approval of change in salary must be signed by one primary and one secondary

signatory.

 Payroll records can only be accessed by authorized individuals.