2. Study objectives
Understand:
Characteristics of the cycle
Activities in the cycle
Documents used in the cycle
Flow chart – manual system
Control objectives and risks in the cycle
Computerisation of the payroll cycle
3. Why is this cycle important - characteristics?
Major expense
Cash
Wage payouts
Move to EFT’s
Susceptibility to fraud
Lack of visible audit trail – Internally generated Doc
4. Practical example
You have recently qualified as a Chartered Accountant, and unlike most of your
peers have decided to start your own company selling photocopiers. You realise
that you require the help of a personal assistant and a couple of sales clerks. The
sales clerks will have to work based on an hourly rate of R 9 per hour and will
be paid per hour worked and will be paid every second week. Overtime is to be
paid to the employee time x 1.5
The personal assistant will be paid a fixed monthly salary of R 10k per month.
Where do you begin?
10. CONTROL OBJECTIVES
Validity (Occurrence)
Accuracy
Recording
Completeness
Cut off
Presentation & Disclosure
11. FUNCTIONAL AREAS AND RISKS -example
Document Risk Control
Payroll amendment form Unauthorised amendments to the employee
records
Requests for changes to employee records
should be signed by the department initiating
the request and approved by HR
Employee file Unauthorised changes to an employee file All changes should be approved by HR and
supported by motivations i.e. performance
evaluation or request from staff member to
update personal information
12. FUNCTIONAL AREAS AND RISKS -example
Document Risk Control
Clock cards Invalid hours worked Hours worked approved by supervisor
Deduction tables Use incorrect deduction tables Deduction tables should indicate on the table
to which tax period it apply
Employee list or register Employee list is not updated with
employee movement
HR should update the employee list with any
movement on the day of the movement after
approval of the HR manager
Payroll Payroll calculations might be incorrect Supervisor should review the payroll for
reasonableness
13. FUNCTIONAL AREAS AND RISKS -example
Document Risk Control
Payroll Payroll deductions could be incorrect Head of payroll should review each payroll
reconciliation for reasonableness
Pay-package Errors or theft of cash from pay-package Independent recount of cash in pay-package in a
secure environment before distribution
Unclaimed wage register Misappropriation of unclaimed wages Unclaimed pay-package should be locked away
by the paymaster who also keep the unclaimed
register
Payroll journal Losses due to undetected overpayment Independent monthly review by the accountant
for reasonableness
14. COMPUTERISATION OF THE PAYROLL CYCLE
Access
Menus
Integration
Screen aids (automated checks)
Logs an reports
Matching and minimum entry
Online approval
Audit trail
