Business functions:

Hiring

(Personnel)

Responsible for managing the human resource needs of the organization (hiring and terminating employees, setting wage rates and salaries, and establishing and monitoring employee benefit programs). Any changes (increment or deduction) on employment should use specific authorization form before changes can be made.

Timekeeping

(Record of work done)

Processing of employees’ attendance and time information and coding of account distribution. Most organization practice electronic or computerized systems for maintaining timekeeping data.

Payroll processing

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Responsible for computing gross pay, deductions and net pay. This function is also responsible for recording and summarizing payments and verifying account distribution. It is to ensure all transactions are recorded (completeness), no unrecorded liabilities (occurrence), accurately (accuracy) and in the proper period (cut-off).

Disbursement

(Payment)

Responsible for paying employees for services and benefits. An imprest bank account that is specific for payroll to ensure the amount to be paid for the month is available in the account to prevent overpayments to employees.

General Ledger

Accounting department is responsible for properly accumulating, classifying and summarizing payroll and benefits transactions in the general ledger.

Functions

Control procedures

Possible misstatements

Personnel

• Hiring and dismissing employees
• Preparation of personnel records
• Authorizing payroll changes

1. Interviews should be conducted appropriately by at least two officers
2. Approval of hiring (offer letter), termination of employees and any notification of changes on employment including pay rates should come from an independent authorised personnel in HR dept
3. Any changes on employment should be immediately updated and informed to payroll department

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1. Biased may occur or possibility of hiring under qualify candidate
2. Payroll may include fictitious employee; terminated employee may remain in the payroll register, and unauthorized change in salary rate may occur
3. Over or under payment of salary may occur

Timekeeping, preparing and recording payroll

• Production of timecard
• Authorization of hours worked
• Recording and summarizing payroll

1. Timecard must be prenumbered and accounted for
2. Recording of attendance should use reliable system
3. Authorization to work (documented instructions for overtime)
4. Adequate chart of accounts established by company and conduct an independent review

1. Missing timecard may not be detected easily
2. Possibility that the attendance is recorded for absent employee, falsification of arrival and departure time or fraudulent collusion
3. Possibility of overpaid for hours not worked
4. Possibility of wrong classification of expense account recorded and not detected

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Payment

• Processing payroll payment

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1. Timecard should be independently reviewed and authorised by supervisor before payment processing
2. Salary payments should be reviewed against supporting document
3. Internal verification of calculations and amounts
4. Payslip should be prepared for employees
5. Separation of duties between time recording, payroll preparations, cheque signing and pay-outs

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1. Employee may claim more hours than he or she actually worked
2. Inaccurate amount can be paid to employees
3. Incorrect salary calculation might not be detected
4. Difficult to trace if miscalculation occur and no copy for employee future reference
5. May create fictitious employees, making unauthorized payments and defalcation easily

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No.

Weaknesses

Possible misstatements

Recommendations

1

The employees are required to sign in the attendance book

The time recorded may be earlier than actual time or attendance is recorded for absent employees.

A clock machine should be used to replace the attendance logbook.

2

The attendance logbook is placed at the security office at the entrance of the factory building.

Employees may collude with the guards to sign for their behalf.

The attendance system should be located at the production building where specific authorized person in charge.

3

No responsible officer is assigned to review the logbook before entries are made to the payroll record.

Possibility that incorrect hours are recorded, and over or under payment may occur.

Proof of attendance should be reviewed by supervisor before recording.

4

A payroll clerk then records the payroll transactions in the attendance logbook for the payroll journal.

Possibility of error or falsification in records which resulting in over or under payment to employees.

Input and output data from the computerized system must be reviewed and authorized by an independent officer before payment are processed.

5

All the employees are paid in cash using pay-envelopes by the supervisor.

The supervisor may misuse the cash in the envelopes since there is no independent check on his work.

Payment of wages preferably by direct credit to bank.

6

No pay slips given to the employees and only the amount of pay is written on the envelopes.

It will be difficult for the employees to trace any miscalculation if occur.

The company should provide payslip to each employee for their recordkeeping.

7

The pay envelopes for absent employees on pay-day are returned to the payroll department.

Unclaimed wages could be misappropriated.

The company should establish proper control for unclaimed wages.