UNIT 9

The Human Resources

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

- a recurring set of business activities and related data processing

operations associated with effectively managing the employee
workforce
- Important Tasks
1. Recruiting and hiring new employees
2. Training
3. Job Assignment
4. Compensation
5. Performance Evaluation
6. Discharge of employees due to voluntary or involuntary
termination
Human Resources Management/Payroll Cycle

6 ACTIVITIES

Payroll System Human Resource

- Compensation Management System
- Recruiting and Hiring Employees
- Training
- Job Assignment
- Performance Evaluation
- Discharge of employees due to
voluntary or involuntary
termination
HRM/ PAYROLL
CYCLE
INFORMATION
SYSTEM
Overview of HRM Process & Information Needs

- Organizational success depends on skilled and

motivated employees because their knowledge
and skills affect the quality of goods and services
provided to customers
Questions to be answered by the HRM System
- 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 skill level?
- Is overall performance improving or declining?
- Are there problems with turnover, tardiness or absenteeism?
Overview of HRM Process & Information Needs
- Master database provides descriptive information only
◆ Such information does not leverage the specific
knowledge and expertise possessed by its employees
- Knowledge Management System
◆ Serves as a directory identifying the areas of expertise
of individual employees
◆ Captures and stores that knowledge so that it can be
shared and used by others
◆ Improves productivity
Overview of HRM Process & Information Needs

- Recognizing the value of employees’ knowledge and skills

can help companies better understand the true cost
associated with excessive turnover
- Recognizing employee morale is also important
◆ Low Morale -> Creates financial cost when it results in
turnover
◆ High Morale -> Provides financial benefits
 THREATS & CONTROLS

THREATS CONTROLS

1. Inaccurate or 1.1 Data Processing Integrity

Controls
Invalid Master
Data 1.2 Restriction of Access to
Master Data

1.3 Review of all changes to

Master Data
 THREATS & CONTROLS

THREATS CONTROLS
2. Unauthorized 2.1 Access Controls
Disclosure of 2.2 Encryption
Sensitive
Information
 THREATS & CONTROLS

THREATS CONTROLS

3. Loss or Destruction 3.1 Backup and

of Data Disaster Recovery
Procedures
 THREATS & CONTROLS
THREATS CONTROLS
4. Hiring Unqualified 4.1 Sound Hiring Procedures
- verification of job
or Larcenous applicants’ credentials
Employees - skills references
- employment history

4.2 Criminal Background

Investigation Check
- applicants for finance
related position
 THREATS & CONTROLS

THREATS CONTROLS

5. Violation of 5.1 Documentation

- Hiring
Employment Laws - performance evaluation
- dismissal procedures

5.2 Continuing Education on

changes in employment law
GUESS THAT
INTRO!
Payroll Cycle
Activities
A Quick Overview
Updating the Payroll Master Database

- First activity in the HRM/payroll cycle

- Update reflects internal changes: new hires,
terminations, etc
- Records of employees who leave are not immediately
deleted, for tax or other purposes.
Threats and Controls
Threats Controls

- Unauthorized access to - Segregation of duties must

payroll master data can be maintained
result in excess - System can produce a

expenditures and report listing all

unjustified payments to payroll-related changes for
employees review by a supervisor
Validating Time and Attendance Data

- Second step in payroll cycle

Employee type Method

Hourly Time cards track arrival and departure

Fixed Wage Informal monitoring by supervisors; alternative methods

Manufacturing Job-time tickets provide detailed time data for each task

Professional Service Time sheets; also help with computing fees for customers

Sales Commission Sales records, must be accurately maintained

Threats and Controls
Threats Controls

- Inaccurate time and - Source data automation,

attendance data (either such as badge readers, can
due to fraud or error) can reduce unintentional errors
result in extra expenses in attendance data
and hurt employee morale - using biometric scanners
and the like can also
reduce intentional errors
GUESS THAT
INTRO!
Preparing the Payroll

- Third step in the payroll cycle

- Follows a sequence of activities:
1. Payroll transaction data is edited, and the validated
transactions are sorted by employee number.
2. Prepare employee paychecks by computing for gross
pay and subtracting all payroll deductions from
gross pay to obtain net pay
3. Year-to-date records for gross pay, deductions, and
net pay in each employee’s record in the payroll
master file are updated.
 Why maintaining accurate cumulative
earnings records is important
1. Social Security Tax withholdings and other deductions
have cutoffs
2. To ensure that the appropriate amounts of taxes and
other deductions are remitted to government
agencies, insurance companies, and other
organizations
 Creating the Payroll & Deduction Registers
1. Payroll register - a listing of payroll data for each employee for
a payroll period
2. Deduction register - a report listing the miscellaneous
voluntary deductions for each employee
3. Earnings statement - a report listing the amount of gross
pay, deductions, and net pay for the current period and the
year-to-date totals for each category
While payroll transactions are being processed

- System allocates labor costs to the appropriate general

ledger accounts
- System maintains a running total of these allocations
- totals and the column totals in the payroll register
◆ Basis for the summary journal entry
◆ Summary journal entry -> posted to the general
ledger
 THREATS & CONTROLS

THREATS CONTROLS

9. Payroll Processing 9.1 Data processing integrity

controls
Errors - batch totals
- cross-footing of the payroll
register
- use of a payroll clearing
account
- and a zero-balance check
 THREATS & CONTROLS

THREATS CONTROLS

9. Payroll Processing 9.2 Supervisory review of

the payroll register and
Errors other reports

9.3 Issuing earnings

statement to employees

9.4 Review of IRS

guidelines
 Payroll Disbursement Process
- Accounts payable reviews and approves the payroll register
- Prepare the disbursement voucher
◆ To authorize transfer of funds
◆ Used to update the general ledger
- Review of the payroll register and disbursement voucher
- Cashier prepares and signs a check or initiates an EFT
transaction
- Cashier redeposits any unclaimed paychecks in the
company’s bank account
 Direct Deposit Process

- Employees receive a copy of the paycheck

- Payroll system generates a series of payroll deposit
files
- Each file contains a record for each employee whose
account is maintained at a particular bank
- Funds are sent electronically using EDI
- Funds from employer’s bank account -> employee’s
account
 THREATS & CONTROLS

THREATS CONTROLS
10.1 Restrict access to blank payroll
10. Theft or fraudulent checks and to the check signature
machine.
distribution of
10.2 Restrict access to the EFT system
paychecks
10.3 Prenumber and periodically account
for all payroll checks and review all EFT
direct deposit transactions

10.4 Require proper supporting

documentation for all paychecks
 THREATS & CONTROLS

THREATS CONTROLS
10.5 Use of a separate checking account for
10. Theft or fraudulent payroll

distribution of 10.6 Segregation of duties

paychecks 10.7 Restriction of access to payroll master

database

10.8 Verification of identity of all employees

receiving paychecks

10.9 Redepositing unclaimed paychecks and

investigating cause
 Calculation and Disbursement of Employer-Paid
Benefits Taxes and Voluntary Employee Deductions

- Employers must pay Social Security taxes in addition to the

amounts withheld from employee paychecks.
- Ensuring that other funds deducted are correctly calculated
and remitted in a timely manner.
- Contributing some or all of the amounts to pay for their
employee’s health, disability, and life insurance premiums as
well as making matching contributions to retirement plans
 Calculation and Disbursement of Employer-Paid
Benefits Taxes and Voluntary Employee Deductions

- Offering flexible benefits plan

◆ A plan where each employee receives some minimum
coverage in medical insurance and pension contributions,
plus additional benefit “credits” that can be used to
acquire extra vacation time or additional health insurance
 THREATS & CONTROLS

THREATS CONTROLS

11. Failure to make 11.1 Configuration of system to

make required payments
required payments using current instructions
from IRS
 THREATS & CONTROLS

THREATS CONTROLS

12. Untimely payments 12.1 Configuration of system

to make required payments
using current instructions
from IRS
 THREATS & CONTROLS

THREATS CONTROLS

13. Inaccurate 13.1 Processing integrity

controls
payments
13.2 Supervisory review of
reports

13.3 Employee review of

earnings statement
Outsourcing Options

Payroll service bureau

- An organization that maintains the payroll master file for each of

its clients and performs their payroll processing activities for a
fee.

Professional Employer Organization (PEO)

- An organization that processes payroll and also provides human

resource management services such as employee benefit design
and administration.
GUESS THAT
INTRO!
GUESS THAT
INTRO!
GUESS THAT
INTRO!
NOW
Venus has a beautiful name and is the
second planet from the Sun. It’s terribly
hot—even hotter than Mercury—and its
atmosphere is extremely poisonous. It’s
the second-brightest natural object in
the night sky after the Moon
 FUTURE
Jupiter is a gas giant and the biggest
planet in the Solar System. It’s also the
fourth-brightest object in the sky. Its
name comes from the Roman god of
the sky and lightning, Jupiter, who was
the king of gods
THANKS! CREDITS: This presentation
template was created by Slidesgo,
including icons by Flaticon,
infographics & images by Freepik
and illustrations by Stories

Please keep this slide for attribution