Ch. 15 -

HRM / Payroll Cycle

Hire & pay employees

Cycle of Business Activities

Sale

Conversion

InputAcquisition

Capital Investment

ExpenditureCycle

RevenueCycle

ProductionCycle

General Ledger andReporting System

Capital Investment

FinancingCycle

Human Resource

Payroll Cycle

HRM/Payroll SystemPurpose: recruiting & hiring training job assignment performance

evaluation Discharge compensation

Important to integrate and monitor nonfinancial

measures & intellectual capital

Employees are the most important asset!!Payroll

(Controller’s Dept.)

Human Resource Dept.

Payroll Context Diagram

H/R

Depts.

Gov't

Employees

Bank

Insurance/Other

PayrollSystem

Figure 15-1

Payroll Changes

Reports

Reports

Time & Attendance

Data

Payroll Taxes &Tax Reports

Tax Rates and Instructions

Paychecks

Withholdings and deductions

Payroll check

Rate changes & instructions

Checks & reports

Payroll Context Diagram

H/R

Depts.

Gov't

Employees

Insurance/Other

PayrollSystem

Figure 15-1

Payroll Changes

Time & Attendance

Data

Tax Rates and Instructions

Withholdings and deductions

Rate changes & instructions

Payroll Context Diagram

H/R

Depts.

Gov't

Employees

Bank

Insurance/Other

PayrollSystem

Figure 15-1

Paychecks

Payroll check

Checks & reports

Reports

Reports

Payroll Taxes &Tax Reports

Payroll Context Diagram

H/R

Depts.

Gov't

Employees

Bank

Insurance/Other

PayrollSystem

Figure 15-1

Payroll Changes

Reports

Reports

Time & Attendance

Data

Payroll Taxes &Tax Reports

Tax Rates and Instructions

Paychecks

Withholdings and deductions

Payroll check

Rate changes & instructions

Checks & reports

Payroll Inputs

Time Cards/Sheets

EmploymentForms

CommissionReports

PieceworkReports

JobTickets

reconcile

Payroll Cycle Level 0 DFD

1.0Update payroll

master file

Figure 15-4 abbreviated

Employees

HRM

Withholdings and

deductions

PayrollchangesPayroll Master

Threats:•Unauthorized changes•Inaccurate information

Controls:•Data integrity controls•Access controls•Segregation of duties•Supervisory review

Payroll Cycle Level 0 DFD

2.0Update tax

rates &deductions

1.0Update payroll

master file

Figure 15-4 abbreviated

Employees

GovernmentAgencies/

Insurance &other Co’s.

HRM

Withholdings and

deductions

Tax Rates & Deductions

Rates and Instructions

Payrollchanges

Payroll Cycle Level 0 DFD

2.0Update tax

rates &deductions

1.0Update payroll

master file

Figure 15-4 abbreviated

Employees

GovernmentAgencies/

Insurance &other Co’s.

VariousDepartments

3.0Validate time & attendance

data

HRM

Withholdings and

deductions

Tax Rates & Deductions

Rates and Instructions

Job Time Tickets

Time Cards

Payrollchanges

Threats:•Inaccurate information

Controls:•Data integrity controls•Biometrics•Supervisory review

Payroll Cycle Level 0 DFD

2.0Update tax

rates &deductions

1.0Update payroll

master file

Figure 15-4 abbreviated

Employees

GovernmentAgencies/

Insurance &other Co’s.

VariousDepartments

3.0Validate time & attendance

data

4.0Prepare payroll

HRM

Withholdings and

deductions

Payroll Master

Tax Rates & Deductions

Rates and Instructions

Job Time Tickets

Time Cards

Validated Time & Attendance

Data

General Ledger

Payrollchanges

Threats:•Processing errors•Inaccurate information

Controls:•Data integrity controls•Earnings statements to employees•Supervisory review

Payroll Cycle Level 0 DFD

2.0Update tax

rates &deductions

1.0Update payroll

master file

Figure 15-4 abbreviated

Employees

GovernmentAgencies/

Insurance &other Co’s.

VariousDepartments

3.0Validate time & attendance

data

4.0Prepare payroll

5.0Disburse payroll

Paychecks

Bank

HRM

Withholdings and

deductions

Payroll Master

Tax Rates & Deductions

Rates and Instructions

Job Time Tickets

Time Cards

Validated Time & Attendance

Data

Payroll

Paychecks

Payroll check

General Ledger

Payrollchanges

Threats:•Theft or fraudulent distribution of paychecks

Controls:•Physical and logical access controls•Segregation of duties•Pre-numbered documents

Payroll Cycle Level 0 DFD

2.0Update tax

rates &deductions

1.0Update payroll

master file

Figure 15-4 abbreviated

Employees

GovernmentAgencies/

Insurance &other Co’s.

VariousDepartments

3.0Validate time & attendance

data

4.0Prepare payroll

5.0Disburse payroll

Paychecks

Bank

HRM

Withholdings and

deductions

Payroll Master

Tax Rates & Deductions

Rates and Instructions

Job Time Tickets

Time Cards

Validated Time & Attendance

Data

Payroll

Paychecks

Payroll check

General Ledger

Payrollchanges

Payroll Cycle Level 0 DFD (continued)

Payroll MasterTax Rates & Deductions

VariousDepartments

6.0Calculate

employer-paidbenefits and

taxesGeneral Ledger

HRM

Figure 15-4 abbreviated

Reports

Reports

Payroll Cycle Level 0 DFD (continued)

Payrolltaxesand

deductions

Payroll MasterTax Rates & Deductions

GovernmentAgencies/

Insurance &other Co’s.

VariousDepartments

6.0Calculate

employer-paidbenefits and

taxesGeneral Ledger

HRM

Figure 15-4 abbreviated

7.0Disburse payroll

taxes andmiscellaneous

deductions

Checks andReports

Reports

Reports

Systems Flowchart - Daily Payroll Activities

HR Transactions - Pay changesHiring/Firing

Other

Time Clock

Machines

UpdateHRM/Payroll

Database

Hours Worked

Time on tasks

Factory/Various Departments

ComputerOperations

HRM

PayrollTransaction

File(Time card

data)

CostData

(job timetickets)

PayrollMaster

File

Figure 15-2abbreviated

Integrated Database

Systems Flowchart - Weekly/Monthly Payroll Activities

PreparePayroll

PayrollTransaction

File(Time card

data)

PayrollMaster

File

ComputerOperations

Figure 15-2abbreviated

GeneralLedgerMaster

File

PayrollRegister

Reports

ManagementCashier

(Treasurer’s Dept.)

Paychecks

Payroll Entries

Step 1: Charge to payroll clearing account

Dr. Cr.Payroll Clearing control account XX

Cash XXPayroll taxes payable XXOther deductions payable XX

Payroll Entries

Step 2: Allocate labor to various expense categories

Dr. Cr.Sales salaries XXAdmin. salaries XXIndirect labor XXDirect labor XX

Payroll clearingcontrol account XX

Zerobalancecheck

Payroll Entries - Employer Benefits & Taxes

Dr. Cr.

Payroll tax expense XXF.I.C.A. payable XXState unemployment taxes payable XXFederal unemployment taxes payable XXOther benefits payable (i.e. insurance) XX

Employers must match employee F.I.C.A. tax.Unemployment taxes are based on various percentages.

Payroll System Reports

ControlReports

Special Purpose Reports:• various cumulative

earnings reports

PayrollRegister(Journal)Deduction

Register

EarningsStatements/

W-2’s

Outsourcing Options

Payroll Service Bureau» Benefits– reduced costs

– privacy

– free-up computer resources

» Disadvantages– difficult integration with HRM system

Professional Employer Organization

Opportunities for Using I/T

On-line employee access to benefits/withholding info on company intranet

direct deposit and EDI Electronic time clocks Badge readers

Segregation of Duties

Timekeeping Payrolland

Between:

Segregation of Duties

Timekeeping Payroll

Payroll CashDisbursements

and

and

Between:

Segregation of Duties

Timekeeping Payroll

Payroll CashDisbursements

Payroll HR

and

and

and

Between:

Combating Payroll Threats

Imprest payroll account unclaimed paychecks sent to I/A reconciliation of check signing machine control of time cards/blank checks segregate payroll distribution payroll file access controls file backups

HR Controls

Hiring background checks Government regulation compliance Control over master file