APAs 21st Annual Congress

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APAs 21st Annual Congress Powered By Docstoc
					Payroll Internal
Control Basics
                     Mindy Harada
               OS Payroll Consulting
Areas of Discussion:

    Definition of Internal Control
    Separation of Duties
    Reconciliation
    Authorization and Approval
    Procedure Documentation
    Management Policy
What is Internal Control?
  A process designed to provide reasonable
   assurance regarding the objectives in the
   following categories: effectiveness and
   efficiency of operations; compliance with
   applicable laws and regulations; and reliability
   of financial reporting. (CCH)

  A system of checks and balances applied
   within an organization to ensure the accuracy
   of its financial records and the security of its
   assets. (Payroll Source Book)
Separation of Duties
  A job or process should not be performed by a single
   individual or department without the review of another
   individual or department.

  Creating the separation:
      Set the Policy              Sr. Management
      Authorize                   Sr. Management
      Document                    Payroll
      Implement                   Payroll, Acctg, Treas.
      Verify                      Auditors/other dept.
Separation of Duty examples
                        Big Company

  HR keeps the employee data such as rate of pay, cost center,
  Payroll handles timecard entry, OT and PTO
  Payroll cuts the checks, HR hands them out
  Treasury completes the bank recon

                         Small Company

  Acctg dept completes the bank recon
  Dept heads check employee lists against employees who
   receive paychecks
  Store paychecks outside the payroll dept but keep the key in
Account Reconciliation
  Check the accuracy of recorded Payroll transactions

     Verify that debits and credits, journal entries and general ledger
      balance for each transaction

     Compare the amount of social security tax withheld and listed on the
      payroll register to the amount booked on the G/L

     Make sure checks issued by accounts payable have been posted to
      the right account

     Verify the end of the month balance agrees with payroll dept records.
      It is possible that taxes with held in one month did not have to be paid
      by the end of the month.

     Reconcile discrepancies at least monthly
Bank Reconciliation
 Bank Reconciliation
                          Automated reconciliation
 Made easier by:
  Direct deposit
  Automated bank recon   Check sequence control
   software               Check data file
  Positive pay           Cancelled check file
 Be careful of manual     Outstanding check file
   checks                 Unmatched check file
Payroll IT Level controls

  Changes to applications, software and hardware are
   authorized, tested, approved, properly
   implemented and documented

  Physical access to computer equipment, storage
   media is restricted by authorization

  Programs and data are routinely backed up and
Authorization and Approval
 Authorization is defined by your company policy-
    for example, all Managers are authorized to
    approve overtime and vacation requests for
    their direct reports.
 Approval is signing on the line, accepting
    responsibility for the authenticity of the form or
 It should be well known in the payroll department
    who, in senior management, has authorization
    and for what items or limits.
Authorization and Approval
   Define the type of authorization and approval
   and then decide what level of procedural
   documentation and/or management policy
   must be created.

          There are 2 types of controls:

 Preventative:    Stopped before it happens
 Detective:       Find after it occurs
Policies and Procedures
            Policies                  Procedures
 Rules that govern a process Instructions for getting the
   or job. They include         job done. Should
   company policies and         include the payroll dept’s
   legal requirements.          contingency plan and
   Items like OT                instructions for entering
   requirements, PTO
   policies, federal tax        pay data, master file
   return due dates, when a     data, etc. Every task
   terminated employee          performed by the dept
   must receive a paycheck      should be defined and
                                explained in its policies
                                and procedures manual.
Procedure Documentation
 What should the Payroll Dept have in writing?
  Company policies on overtime, benefits, vacations, sick
   leave, termination, recordkeeping, etc
  Procedures for handling payroll, tax deposits, quarterly
   returns, liabilities, direct deposit, acct reconciliations,
  The entire payroll process, A to pay!
  Disaster recovery plans
  Payroll computer system user manuals
  Define your Master System of Record
  Payroll dept job descriptions
  Accurate Data File descriptions & location of file
Management Policy
 Who is allowed to be a ‘backup’ for absences?
 How documented do the procedures have to be?
 How are issues reported? (and to whom?)
 How does the Payroll manager stay up-to-date on
   regulatory changes?
 Who is assigned to update policies?
 What is the procedure for approving requests for
   confidential information?
 Questions?