Lecture 7 THE PAYROLL/HRM CYCLE, PROCESS MAPPING & CHANGE MANAGEMENT

Reminders Continue with your MYOB tutorials. MYOB Assignment will be released next week (week 8) MYOB assignment is continuation of activities of MYOB tutorial.

LECTURE OBJECTIVE To understand the Payroll Cycle process To understand and know the database and processing involved in the Payroll Cycle To be able to map processes and document flows in an organisation Understand ways to manage change resulting form use of IT

Module 1 What is the key objective of the Payroll/HR Process How is Data Recorded & Managed within the Cycle? How is employee compensation (Payroll) calculated within the Payroll Cycle?

Nature and Objective of Payroll/HRM Process Nature (Definition) - A recurring set of business activities and related data processing operations associated with effectively managing the employee workforce. Objective - To record and report on the activities and processes involved in employing labour and the ultimate payment of compensation for their efforts.

How to ensure segregation of Duties in Payroll Cycle

Interactions with Payroll/HRM

The HRM Activities Stages in relationship between employee/employer:- recruitment, training, job assignment, compensation, evaluation, discharge (termination). maintaining personal records including education, qualifications, awards, training etc maintaining employment history provide management reports (evaluation)

The Payroll Activities Calculate Employee compensation Link: use same database (employee) as HRM but differ in duration & focus Meet government requirements especially tax Key Features Major component of AIS Batch processing used More interaction with outside parties

Module 1 Review What is the objective of the Payroll/HR Process? Which department manages the Employee Data within Payroll and HR Cycle? Which department deals with Employee Compensation within the Payroll and HR Cycle?

Module 2 The payroll process

Key Payroll Processes

1. Updating Database HRM Issues Tax Issues Hiring, transfers, promotions, terminations, changes in wage rates, tax status, deduction authorisations Updates continually made on-line Do not delete employees when they leave Tax Issues Information from Government agencies or other outside bodies eg changes in tax withholdings, increased insurance premium Performed infrequently

Tables Updated

2. Validate Time and Attendance Data For Wages – Time-Based time worked eg job time tickets clock cards badge readers biometric hand readers Fixed Salary A determined portion based on pay period Service-Based professional firms (eg accountants) data: units of time spent on job, hourly rates Performance-Based Commission % of Sales incentive schemes

Validate time and attendance data Payroll Department’s Role Time information collected in employee’s department and signed off Timesheets checked, cross total (if not electronic) Data Entry (if not electronic)

Timesheet and Table Update Note: To do job and/or customer costing (Management Accounting) the timesheet table would also include the attributes: Job Number and Customer Number (these would also need to be part of the primary key, together with Employee Number and Pay Period)

Prepare Payroll Pay rates and deductions come from employee and employee deduction tables Calculate gross pay wages (hourly rate x hours worked) salaried employee any commission payable Calculate deductions (superannuation, private health, union dues, life insurance, social club) Net pay = gross pay - deductions

Preparing Payroll in MYOB

Processing Payroll Update YTD fields Payroll Register (report) to record gross pay, deductions and net pay for all employees Pay Advice Slips (Earnings statements) - make them available each pay period – for each employee Employees Earnings Record – data available to prepare this

Calculating Gross Pay INPUT DATA PROCESSING STEP Gross Pay = Normal Hours * Pay Rate + Overtime Hours * Pay Rate * 1.5 STORED DATA

Calculating Deductions INPUT DATA PROCESSING STEP Salary Sacrifice Superannuation Deduction = Gross Pay* Deduction Rate OR Deduction Amount PAYG Deduction = Function(Gross Pay – Salary Sacrifice) STORED DATA Total

Calculating Net Pay INPUT DATA PROCESSING STEP Net Pay = Gross Pay - Deductions STORED DATA

Updating Ytd Figures INPUT DATA PROCESSING STEP YTD = YTD + This Period STORED DATA

Prepare Payroll - Update GL from Payroll Register From total row of Payroll Register: NOTE: Payment is not made. Wages Expense Dr 2530.00 PAYG Tax Payable Cr 688.00 Super Fund Cr 80.00 ABC Insurance Cr 25.00 Wages Payable Cr 1737.00

4. Disburse Pays Pay using cheque or direct deposit Payroll Register used by Accounts Payable to authorise the payment and cheques to be drawn Cashier draws cheques/direct deposits for individual pays Separate Payroll bank account is often used Generate payroll deposit files for each bank

Disburse Pays - Update General Ledger When Payment is Made – Only for Wages Wages Payable Dr 1737.00 Cash Cr 1737.00 If pay employees by cheque, individual cheques drawn to total $1737.00

5. Calculate Employer-Paid Benefits & Taxes Superannuation, Payroll tax, Fringe Benefits tax, Workers Compensation These are legitimate expenses of the business. Employer usually pays 9.25% for superannuation on ordinary pay (new rate July 1, 2013) Recorded but not paid Superannuation Exp Dr 198.00 Super Fund (Liability) Cr 198.00

Disburse Taxes and Deductions Collect on behalf of employees a range of deductions PAYG withholding tax Superannuation Private Medical Insurance (Bupa, Nib etc) This money must be periodically paid to the relevant organisation on their behalf.

Disburse Taxes and Deductions - Update GL Paid to Authorities PAYG Tax Payable Dr 688.00 Super Fund* (Employee) Dr 80.00 ABC Insurance Dr 25.00 Cash Cr 793.00 Super Fund* (Employer) Dr 198.00 Cash Cr 198.00 * Can be joined together

Link to records which must be kept and information which must be provided to employees http://www.fairwork.gov.au/resources/fact-sheets/employer-obligations/pages/employee-records-and-pay-slips-fact-sheet.aspx

Payroll Service Bureaus Outsourcing - outside organisation prepares and distributes pays Attractive to small and midsize businesses Supply them with time and attendance data and master file maintenance data Advantages reduced costs wider range of benefits free up computer resources

Module 2 Review What tables (and fields) are updated through activities of the Payroll Process? What is a Payroll Register? What is a key source document in the Payroll Process? What accounts are affected through the payroll process.

Module 3 - Controls in HRM/Payroll As the Payroll Cycle involves payment by the company, it attracts fraudsters. How do we minimise the chance of fraud?

Controls in HRM/Payroll Key System Objectives All payroll transactions properly authorised All recorded payroll transactions are valid All valid, authorised payroll transactions are recorded Applicable government requirements are met Assets are safeguarded Activities are performed efficiently and effectively

Key Control Issues and Control Procedures Hire unqualified or larcenous employees Appropriate hiring procedures Violation of employment law Documentation (see slide in prior section re requirements) Unauthorised changes to employee and timesheet tables Physical access controls Passwords Segregation of duties Approval of changes

Key Control Issues and Control Procedures Inaccurate time data Automation of time collection Reconcile job cards and time cards Data entry controls Inaccurate processing Batch totals Cross footing net pay = gross – deductions Payroll clearing account and do zero balance check

Key Control Issues and Control Procedures Theft or fraudulent distribution of pay cheques Direct deposit Independent distribution Restrict access to blank pay cheques Loss or unauthorised disclosure of payroll data Access controls Backup procedures Encryption

Control case What internal control procedure(s) would be most effective in preventing a programmer increasing his /her salary? Implement physical access controls such as a file library function to prevent programmers from having unsupervised access to production databases  Implement authentication and authorization controls such as user ID’s, passwords, and access control matrix to limit access to authorized personnel only  Have supervisors review reports of all changes to employee table to detect this type of fraud  Have the personnel department maintain a batch total of all salaries and check it against the corresponding total generated during each payroll run as a detective control

Module 3 Review What is the most difficult area to control within the payroll cycle?

Module 4 - Process Mapping A method of graphically representing process flow and responsibilities, and The flow of documents and information between the processes, and To identify control weaknesses

Process Map Step 1 Identify Entities/Divisions Step 4 Draw in Activities Step 2 Draw Lanes Step 3 Indicate sub-functions

Step 1 - Identify entities and divisions Compile a chronological list of the entities and their respective activities in the process. As described above, an entity can be any person, place or thing involved, including people and computers.

Step 2 - Draw the lanes for each division If you have four entities identified in the previous step, then the rectangle will need to be divided up into four parts; Once the ‘swim lanes’ have been created, label them down the left-hand side with the entity name.

Step 3 - Indicate any sub-functions If you have two different entities working in the same division, break the division up using a broken horizontal line, so that there is a swim lane for each person.

Step 4 - Draw the activities of each entity Fill in the lanes for each entity involved: that is, provide a representation of the tasks performed, how the tasks link up with one another, and the documents and information that flow among the entities.

How would you map this process Snappy Lighting purchases lights from overseas suppliers. The purchase area staff receive purchase requestions from the Sales Manager each week. Purchases staff process create a purchase order and send it to the supplier, the invoice and the goods are then received by Snappy Lighting into the receiving department of the inventory warehouse for checking and creation of a receiving report. The supplier invoice and the receiving report are sent to accounts payable officer for checking with the purchase order. If these documents are in agreement, then receiving staff enter goods into the perpetual inventory system. If not the accounts payable officer liaises with the lighting supplier and purchase area staff. 1. Identify entities/ divisions

3. Indicate sub-functions Sales Manager   Purchase Area Staff Supplier Receiving Department Staff Accounts Payable Officer 2. Draw lanes 3. Indicate sub-functions

4. Draw activities Sales Manager Submits Purchase Requisition Snappy Lighting purchases lights from an overseas supplier. The purchase area staff receive purchase requestions from the Sales Manager each week. Purchases staff process create a purchase order and send it to the supplier, the invoice and the goods are then received by Snappy Lighting into the receiving department of the inventory warehouse for checking and creation of a receiving report. The supplier invoice and the receiving report are sent to accounts payable officer for checking with the purchase order. If these documents are in agreement, then receiving staff enter goods into the perpetual inventory system. If not the accounts payable officer liaises with the supplier and purchase area staff. Sales Manager   Purchase Area Staff Supplier Receiving Department Staff Accounts Payable Officer Submits Purchase Requisition Create Purchase Order Send to supplier Goods sent to Snappy Invoice sent to Snappy Update Inventory Goods received and checked, receiving report produced Agree Check invoice, receiving report and order for consistency Contact supplier 4. Draw activities

Module 5 – Change Management Introducing new systems is a change and with change comes people issues. How do we maximise the chance of success and minimise the /people issues

Role of Accountants in AIS Accountants usually manage the AIS within an organisation If an AIS is changed to a new system, the accountant together with the HR department must manage how staff working in the accounting area handle this change

How Accountants can better manage the Change in AIS systems New System will bring changes in organisation Individuals involved in systems development are agents of change who are continually confronted by people’s reaction and resistance to change. The best system will fail without the support of the people it serves.

Why Behavioural Problems occur Key Reasons Personal characteristics and background Manner in which change is introduced Experience with prior changes Lack of top-management support Communication Biases and natural resistance to change Disruptive nature of the change process Fear

How do people resist change Aggression Avoidance Outright rejection

How to Manage Change Describe new challenges and opportunities Meet needs of the users Keep communication lines open Maintain a safe and open atmosphere Obtain management support Allay fears Solicit user participation Control users expectation Keep the system simple Describe new challenges and opportunities

MODULE 4 REVIEW How do you encourage staff to support the change to make it a success?