L10. Payroll Processing

Human Resource and Payroll

edmundchung

L10.Payroll Processing

WHY? Payroll processing involves the accurate calculation and distribution of employee wages, taxes, and deductions. Proper controls reduce the risk of payroll fraud, ensure compliance with tax regulations, and guarantee that employees are paid accurately and on time.

HOW?

Segregation of Duties

• The functions of payroll preparation, approval, and distribution are separated among different individuals.

• Payroll processing is handled by personnel distinct from those responsible for general ledger entries and bank reconciliations.

• Employees responsible for payroll adjustments, such as overtime or bonuses, are independent from those handling payroll distribution.

Authorization Controls

• Payroll changes, including new hires and terminations, require formal authorization from HR and management.

• Payroll processing is reviewed and approved by a supervisor before disbursements are made.

• Employee access to payroll systems is limited based on job responsibilities and is reviewed periodically.

Payroll Processing Controls

• Payroll data is reconciled regularly with general ledger accounts and reviewed for any discrepancies.

• Completed payroll registers are reviewed for accuracy by an employee independent of payroll preparation.

• Procedures are in place to verify employee benefits, such as accumulated vacation or sick leave, before disbursements are made.

Payroll Disbursement Controls

• Payroll checks or electronic transfers are processed only after management approval.

• Access to payroll checks, signature plates, and the payroll bank account is restricted to authorized individuals.

• Payroll disbursements are supervised to prevent unauthorized payments, and any unclaimed wages are returned to the finance department for review.

Q&A

• Q1: What is the purpose of payroll reconciliations?

• Q2: How can payroll fraud be prevented?

• Q3: What role does technology play in payroll management?