The Human Resources and Payroll Cycle

I. Payroll Cycle Activities

 Update payroll master data
(Payroll department also receives notification of changes in tax rates
and other payroll deductions from government agencies, insurers,
unions, etc.and it occurs periodically)
• provides information on new hires, terminations, changes in
pay rates, and changes in discretionary withholdings.
• Appropriate edit checks
• Changes must be entered in a timely manner
• Records of terminated employees
• should not be deleted immediately
 Validate time and attendance data
• How can information technology help?
• Collecting time and attendance data electronically, e.g.:
• Badge readers
• Electronic time clocks
• Data entered on terminals
• Touch-tone telephone logs
• Using edit checks to verify accuracy and reasonableness
when the data are entered
 3. Prepare Payroll
• The payroll master file is read for pay rates
• Obtain net pay
• Year-to-date totals
 4. Disburse Payroll
• Year-to-date totals
 • A disbursement voucher is prepared to authorize transfer of
funds from checking to the payroll bank account.
• The approved disbursement voucher and payroll register are
sent to the cashier.

II. Objectives of the HR and Payroll Cycle Activities

A second major function of the AIS in the HRM/payroll cycle is to provide
adequate internal controls to ensure meeting the following objectives:
• All payroll transactions are properly
authorized.
• All recorded payroll
transactions are valid.
• All valid, authorized payroll
transactions are recorded.

• All payroll transactions are accurately recorded.

• Applicable government regulations regarding remittance of taxes and filing of
payroll and HRM reports are met.
• Assets (both cash and data) are safeguarded from loss or theft.
• HRM/payroll cycle activities are performed efficiently and
effectively.

III. Data Input ,Data Processing and Information Processing

Data Inputs
• Personnel action forms
• Timecards
• Payroll deduction authorizations
• Tax withholding forms

Information Processing
Payroll Processing
-The objective of payroll processing is to efficiently and effectively remunerate
employees for the services they provide.
 Data Output
• Employee listings
• Check registers
• Paychecks
• Deduction reports
• Tax reports
• Payroll summaries

IV. HR and Payroll Cycle Threats and Control

Threat 1: Hiring Unqualified or Larcenous Employees

 Hiring unqualified employees can increase production expenses, and
hiring a larcenous employee can result in theft of assets.
 Skill qualifications for each open position should be stated explicitly in
the position control report.
 It is especially important to verify a job application’s skills and
references, including college degrees earned, because research shows
that approximately 30% of resumes contain false information.
Threat 2: Violation of Employment Law
 The government imposes stiff penalties on firms that violate provisions
of employment law.
 The best control procedure is careful documentation of all actions
relating to advertising, recruiting and hiring new employees and
dismissal of employees.
 Careful training to keep up on laws.
Threat 3: Unauthorized Changes to the Payroll Master File
 Unauthorized changes to the payroll master file can results in increased
expenses if wages, salaries, commission or other base rates are
falsified.
 Proper segregation of duties is the key control procedure for dealing
with this third threat.
 Only the HRM department should be able to update the payroll master
file for hirings, firings, pay raises and promotions.
 Controlling access to the payroll system is also important. The system
should be programmed to compare user IDs and passwords with an
access control matrix that:
• defines what actions each employee is allowed to perform, and
• confirms what files each employee is allowed to access.

Threat 4: Inaccurate Time Data

 Inaccuracies in time and attendance records can result in increased
labor expenses and erroneous labor expense reports.
 Automation can reduce the risk of unintentional inaccuracies (field,
limit, and validity checks).
 Proper segregation of duties can reduce the risk of intentional
inaccuracies

Threat 5: Inaccurate Processing of Payroll

 Processing errors can lead to penalties if the errors result in failure to
remit the proper amount of payroll taxes due the government.
 Three types of control procedures address the threat of payroll errors:
1. Batch totals should be calculated at the time of data entry
and then checked against comparable totals calculated during each
stage of processing. Hash totals of employee numbers are particularly
useful. If the original and subsequent hash totals of employee numbers
agree, it means that: all payroll records have been processed,
data input was accurate, and no bogus time cards were entered during
processing.
 (2) Cross-footing the payroll register: total of net pay column
should equal the total of gross pay minus total deductions.
(3) A payroll clearing account: a general ledger account that is
used in a two-step process to check the accuracy and completeness of
recording payroll costs and their subsequent allocation to appropriate
cost centers.

Threat 6: Theft or Fraudulent Distribution of Paychecks

 Another major threat is the theft of paychecks or the issuance of
paychecks to fictitious or terminated employees.
 The controls related to other cash disbursements, also apply to payroll:
• Access to blank payroll checks and to the check signature
machine should be restricted.
• All payroll checks should be sequentially pre numbered and
periodically accounted for.
• The cashier should sign all payroll checks only when supported
by proper documentation (the payroll register and disbursement
voucher).
• Someone independent of the payroll process should reconcile
the payroll bank account.
• A separate payroll bank account provides additional protection
against forgery or alteration.
• It is also important that someone who does not authorize or
record payroll should distribute paychecks and control the
transfer of funds for direct deposit.
• Special procedures should be used to handle unclaimed
paychecks because they indicate the possibility of a problem,
such as a nonexistent or terminated employee.
 Threat 7: Loss, Alteration or Unauthorized Disclosure of Data
 Backup and disaster-recovery procedures provide the best controls for
reducing the risk of payroll data loss.
 Physical and logical access controls are important preventive measures
to mitigate this threat.
 Access and processing integrity controls are also needed to ensure the
confidentiality and accuracy of payroll cycle data transmissions.
 Finally, protecting the privacy of employee data also is important.

Threat 8: Poor Performance

 Preparing and reviewing performance reports is an effective means of
addressing the threat of poor performance.
 Careful monitoring of employees’ productivity is necessary to
determine if the employee is working the hours in which they are
getting paid for. Also, that the employees are not conducting personal
business during working hours, such as using the company’s computer
to send personal emails or shopping on the Internet or visiting with
others.

V. Web Security Procedures

1. Secure Physical Environment

 The physical layout of the payroll department affects the security of the
information.
 Any physical copies of documents that contain personal information
need to be locked up at all times.
  Filing cabinets with locks work well for this purpose. Position desks so
the computer screens aren't visible from the door or by those walking
nearby.
 Keep the doors to the payroll office locked with access only to payroll
employees and authorized management. If any documents are stored
offsite, choose a location that allows you to keep the documents locked
up with access only by authorized personnel.

2. Limit Access
 In addition to the physical precautions, a company needs to establish
guidelines for access to the payroll information.
 For example, individual employees are typically able to access their own
records, but other employees should not have access to colleagues'
information.
 Determine who has access to each employee's records and how access
is handled. Bring the specific information to the employee instead of
allowing him to retrieve it.
 Supervision while the employee is in the payroll department is also key
to maintaining security.

3. Establish Electronic Security

 Since the majority of payroll is handled electronically, the choice of
software and the company's electronic security is essential.
 Your company needs a firewall to protect your computer systems and
databases.
 Password protection on all computer stations provides further
electronic protection.
  Work with the information technology department or with an
independent consultant to upgrade your security, and conduct regular
checks to ensure the system works properly.

4. Standardize External Requests

 External inquiries for payroll information leave you open to a potential breach.
 While creditors, mortgage companies and other entities with a financial
interest may contact you, there is no way to verify who is actually on the other
end of the line.
 You may get calls seeking to verify income for an employee or from creditors
who want to garnish wages.
 Create a standard system for inquiring about this information in writing. In the
case of a garnishment, the proper legal channels need to be followed.
 Train all payroll employees on the proper procedures for releasing any
personal information about employees.

5. Properly Handle Disposal

 A smaller amount of documents and information on hand means less
possibility for a security breach.
 When possible, limit the number of items kept unless needed for tax or
auditing reasons. When you do get rid of documents, proper disposal is
essential.
 Establish guidelines for handling sensitive documents, which should include
secure shredding of the materials.
ACCOUNTING
INFORMATION
SYSTEM

4BSA8A
CRUZ, RACHEL ANN
EUSTAQUIO, PHOEBE CATES
ONA, JEZZA
PAMA, MARK ANTHONY
RAMOS, RENALIZ

SUBMITTED TO:
MS.CHYRIN DE VERA