INTERNAL CONTROLS – Timekeeping Elements of
Best Practices
Internal controls are the practices performed by departments to provide
management with reasonable assurance that resources are safeguarded and
transactions are authorized, valid, complete and accurate.
Internal Control Objectives
Encourage adherence to prescribed policies and procedures
Promote efficiency
Provide reasonable assurance that payroll transactions are authorized, valid,
complete and accurate
Safeguard payroll documents from theft, loss and destruction
Benefits of Internal Controls
Prevent errors and irregularities from occurring
If errors or irregularities do occur, they will be detected in a timely manner
Protect employees by clearly outlining tasks and responsibilities and by providing
checks and balances
Responsibility of Management
To develop and implement a system of internal controls
Responsibility of Employees
To follow established policies, procedures and practices and report to management
exceptions or concerns
Four Elements of a Good Internal Control System
Segregation of duties, authorization, documentation and reconciliation
Separation of Duties - No person should have control over a transaction from
beginning to end. Ideally, no person should be able to record, authorize and reconcile a
transaction. Why?
To protect employees by providing a controlled and safe working structure
To prevent and detect intentional and unintentional errors
To encourage adherence to established procedures and practices
Key Points
Separation of duties vary depending on each unit's size and structure
Simply sharing duties between individuals may eliminate this weakness
Increased management oversight compensates when duties are not segregated
Collusion circumvents separation of duties
Authorization - Transactions should be authorized and executed by persons acting
within the range of their authority. Why?
To prevent invalid transactions
To provide checks and balances
To document assigned responsibility of authority
Key Points
Policies and procedures should clearly identify individuals with authority to
approve transactions
Authority requires accountability and responsibility
Signature conveys understanding, first-hand knowledge of transactions, or that
documentation verifies the propriety and validity of transactions
Authorization normally occurs prior to the transaction and in writing
Employees should not authorize their own transactions
Leave and time documents should proceed directly for processing after approval
by a supervisor. Returning documents to the employee provides opportunity for
falsification (i.e. adding unauthorized or excessive overtime hours).
Supervisors should not sign blank forms
Corrections or adjustments on forms should be initialed by the supervisor and/or
employee
Delegation of authority in writing is required for grants and recommended when
applicable
Documentation - Transactions should be clearly and thoroughly documented and
documentation should be maintained. Why?
To provide a record of the event or process
To ensures the accuracy and completeness of transactions
To ensure resources are properly controlled
To comply with state and federal reporting regulations
To provide an audit trail
Time and leave documents may include:
Positive time reports, timesheets, leave slips
Time sheet report, reconciliation report
Absence forms, exception time reports, shared leave, deferred vacation, etc.
Key Points
All forms and documents support time and leave activity
Forms are the property of the university, not the personal property of employee
Follow archival requirements, normally six years
Attach or note corrections/adjustments to the original documents
Reconciliation - Reconciliation is the process of comparing the entries on the Time
Sheet Report, the Positive Time Report and/or the Reconciliation Report to supporting
documentation and resolving any discrepancies or differences. Why?
To ensure the accuracy and validity of the entries and accrued leave balances
To ensure the employee is entitled to the benefits recorded (leave, overtime, etc.)
To ensure unauthorized changes did not occur
To resolve discrepancies in a timely manner
An independent person should perform a reconciliation of the Time Sheet Report at
least annually and when an employee transfers or requests extended leave without pay.
Key Points – Reconciliation Steps
Determine all transactions (sick leave, annual leave, overtime, LWOP, etc) are
supported by authorized documents
Investigate and resolve any questions
Initial and date to document the reconciliation was performed