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Chapter 15 The Human Resources Management and Payroll Cycle 15-1
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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
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HRM and Payroll Cycle 15-3
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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
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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
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HRM/Payroll Cycle Companies Service Goods 15-6
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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
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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
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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
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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
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HRM and Payroll General Controls Unauthorized disclosure of sensitive information Access controls Encryption 15-11
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HRM and Payroll General Controls Loss or destruction of data Backup and disaster recovery procedures 15-12
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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
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HRM and Payroll General Controls Violations of employment laws Thorough documentation of hiring, performance evaluation, and dismissal procedures 15-14
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Update Master File Threats Unauthorized changes to payroll master data Inaccurate updating of payroll master data 15-15
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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
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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
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Validation Threats Inaccurate time and attendance data 15-18
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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
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Prepare Payroll Threats Errors in processing payroll 15-20
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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
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Disburse Payroll Threats Theft or fraudulent distribution of paychecks 15-22
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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
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Disburse Taxes and Deduction Threats Failure to make required payments Untimely payments Inaccurate payments 15-24
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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
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Disburse Taxes and Deduction Controls Inaccurate payments Processing integrity controls Supervisory review of reports Employee review of earnings statement 15-26
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