Chapter 15 The Human Resources Management and Payroll Cycle 15-1

Learning Objectives  Describe the major business activities and related information processing operations performed in the human resources management (HRM)/payroll cycle.  Discuss the key decisions to be made in the HRM/payroll cycle and identify the information needed to make those decisions.  Identify the major threats in the HRM/payroll cycle and evaluate the adequacy of various internal control procedures for dealing with them. 15-2

HRM and Payroll Cycle 15-3

HRM and Payroll Cycle  Managing Employees:  Recruiting and hiring new employees  Training  Job assignment  Compensation  Performance evaluation  Discharge of employees due to voluntary or involuntary termination 15-4

HRM and Payroll Cycle Activities 1.Update master data 2.Validate time and attendance 3.Prepare payroll 4.Distribute payroll 5.Disburse taxes and miscellaneous deductions 15-5

HRM/Payroll Cycle  Companies  Service  Goods 15-6

HRM/Payroll Cycle  Managers need information to answer the following  How many employees does the organization need to accomplish its strategic plans?  Which employees possess specific skills?  Which skills are in short supply? Which skills are in oversupply?  How effective are current training programs in maintaining and improving employee skills level?  Is overall performance improving or declining?  Are there problems with turnover, tardiness, or absenteeism? 15-7

HRM/Payroll Cycle  Knowledge management system - is the process of capturing, developing, sharing, and effectively using organizational knowledge. It refers to a multi-disciplined approach to achieving organizational objectives by making the best use of knowledge 15-8

HRM and Payroll General Threats  Inaccurate or invalid master data  Unauthorized disclosure of sensitive information  Loss or destruction of data  Hiring unqualified or larcenous employees  Violations of employment laws 15-9

HRM and Payroll General Controls  Inaccurate or invalid master data  Data processing integrity controls  Restriction of access to master data  Review of all changes to master data 15-10

HRM and Payroll General Controls  Unauthorized disclosure of sensitive information  Access controls  Encryption 15-11

HRM and Payroll General Controls  Loss or destruction of data  Backup and disaster recovery procedures 15-12

HRM and Payroll General Controls  Hiring unqualified or larcenous employees  Sound hiring procedures, including verification of job applicants’ credentials, skills, references, and employment history  Criminal background investigation checks of all applicants for finance-related positions 15-13

HRM and Payroll General Controls  Violations of employment laws  Thorough documentation of hiring, performance evaluation, and dismissal procedures 15-14

Update Master File Threats  Unauthorized changes to payroll master data  Inaccurate updating of payroll master data 15-15

Update Master File Controls  Unauthorized changes to payroll master data  Segregation of duties: HRM department updates master data, but only payroll department issues paychecks  Access controls 15-16

Update Master File Controls  Inaccurate updating of payroll master data  Data processing integrity controls  Regular review of all changes to master payroll data 15-17

Validation Threats  Inaccurate time and attendance data 15-18

Validation Controls  Inaccurate time and attendance data  Source data automation for data capture  Biometric authentication  Segregation of duties (reconciliation of job-time tickets to time cards)  Supervisory review 15-19

Prepare Payroll Threats  Errors in processing payroll 15-20

Prepare Payroll Controls  Errors in processing payroll  Data processing integrity controls: batch totals, cross-footing of the payroll register, use of a payroll clearing account, and a zero-balance check  Supervisory review of payroll register and other reports  Issuing earnings statements to employees  Review of IRS guidelines to ensure proper classification of workers as either employees or independent contractors 15-21

Disburse Payroll Threats  Theft or fraudulent distribution of paychecks 15-22

Disburse Payroll Controls  Theft or fraudulent distribution of paychecks  Restriction of physical access to blank payroll checks and the check signature machine  Restriction of access to the EFT system  Prenumbering and periodically accounting for all payroll checks and review of all EFT direct deposit transactions  Require proper supporting documentation for all paychecks  Use of a separate checking account for payroll, maintained as an imprest fund  Segregation of duties (cashier versus accounts payable; check distribution from hiring/firing; independent reconciliation of the payroll checking account)  Restriction of access to payroll master database  Verification of identity of all employees receiving paychecks  Re-depositing unclaimed paychecks and investigating cause 15-23

Disburse Taxes and Deduction Threats  Failure to make required payments  Untimely payments  Inaccurate payments 15-24

Disburse Taxes and Deduction Controls  Failure to make required payments  Untimely payments  Configuration of system to make required payments using current instructions from IRS (Publication Circular E) 15-25

Disburse Taxes and Deduction Controls  Inaccurate payments  Processing integrity controls  Supervisory review of reports  Employee review of earnings statement 15-26