Chapter 15

The Human Resources Management and Payroll Cycle

Copyright 2012 Pearson Education

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.

Copyright 2012 Pearson Education

15-2

HRM and Payroll Cycle

Copyright 2012 Pearson Education

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

Copyright 2012 Pearson Education

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

Copyright 2012 Pearson Education

15-5

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

Copyright 2012 Pearson Education

15-6

HRM and Payroll General Controls

Data processing integrity controls

Restriction of access to master data

Review of all changes to master data

Access controls

Encryption

Backup and disaster recovery procedures

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

Thorough documentation of hiring, performance evaluation, and dismissal

procedures

Copyright 2012 Pearson Education

15-7

Update Master File Threats

Unauthorized changes to payroll master data
Inaccurate updating of payroll master data

Copyright 2012 Pearson Education

15-8

Update Master File Controls

Segregation of duties: HRM department updates master
data, but only payroll department issues paychecks
Access controls
Data processing integrity controls
Regular review of all changes to master payroll data

Copyright 2012 Pearson Education

15-9

Validation Threats
Inaccurate time and attendance data

Copyright 2012 Pearson Education

15-10

Validation Controls
Source data automation for data capture
Biometric authentication
Segregation of duties (reconciliation of job-time tickets to
time cards)
Supervisory review

Copyright 2012 Pearson Education

15-11

Prepare Payroll Threats

Errors in processing payroll

Copyright 2012 Pearson Education

15-12

Prepare Payroll Controls

Data processing integrity controls: batch totals, crossfooting 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

Copyright 2012 Pearson Education

15-13

Disburse Payroll Threats

Theft or fraudulent distribution of paychecks

Copyright 2012 Pearson Education

15-14

Disburse Payroll Controls

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

Copyright 2012 Pearson Education

15-15

Disburse Taxes and Deduction Threats

Failure to make required payments
Untimely payments
Inaccurate payments

Copyright 2012 Pearson Education

15-16

Disburse Taxes and Deductions Controls

Configuration of system to make required payments
using current instructions from IRS (Publication Circular E)
Processing integrity controls
Supervisory review of reports
Employee review of earnings statement

Copyright 2012 Pearson Education

15-17