Chapter 15

The Human Resources Management and Payroll Cycle

15-1
 Learning Objectives

 Describe the major business activities and related

information processing operations performed in the
human resources management (HRM)/payroll cycle.

 Discuss the key decisions to be made in the HRM/payroll

cycle and identify the information needed to make those
decisions.

 Identify the major threats in the HRM/payroll cycle and

evaluate the adequacy of various internal control
procedures for dealing with them.

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HRM and Payroll Cycle

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 HRM and Payroll Cycle

 Managing Employees:
 Recruiting and hiring new employees
 Training
 Job assignment
 Compensation
 Performance evaluation
 Discharge of employees due to voluntary or involuntary
termination

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 HRM and Payroll Cycle Activities

1. Update master data

2. Validate time and

attendance

3. Prepare payroll

4. Distribute payroll

5. Disburse taxes and

miscellaneous
deductions

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 HRM/Payroll Cycle

 Companies
 Service
 Goods

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 HRM/Payroll Cycle

 Managers need information to answer the following

 How many employees does the organization need to
accomplish its strategic plans?
 Which employees possess specific skills?
 How effective are current training programs in maintaining
and improving employee skills level?
 Is overall performance improving or declining?
 Are there problems with turnover, tardiness, or absenteeism?

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 HRM/Payroll Cycle

 Knowledge management system - is the process of

capturing, developing, sharing, and effectively using
organizational knowledge. It refers to a multi-disciplined
approach to achieving organizational objectives by
making the best use of knowledge

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 HRM and Payroll General Threats

 Inaccurate or invalid master data

 Unauthorized disclosure of sensitive information

 Loss or destruction of data

 Hiring unqualified or larcenous employees

 Violations of employment laws

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 HRM and Payroll General Controls

 Inaccurate or invalid master data

 Data processing integrity controls
 Restriction of access to master data
 Review of all changes to master data

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 HRM and Payroll General Controls

 Unauthorized disclosure of sensitive information

 Access controls
 Encryption

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 HRM and Payroll General Controls

 Loss or destruction of data

 Backup and disaster recovery procedures

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 HRM and Payroll General Controls

 Hiring unqualified or larcenous employees

 Sound hiring procedures, including verification of job
applicants’ credentials, skills, references, and employment
history

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 HRM and Payroll General Controls

 Violations of employment laws

 Thorough documentation of hiring, performance evaluation,
and dismissal procedures

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 Update Master File Threats

 Unauthorized changes to payroll master data

 Inaccurate updating of payroll master data

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 Update Master File Controls

 Unauthorized changes to payroll master data

 Segregation of duties: HRM department updates master
data, but only payroll department issues paychecks
 Access controls

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 Update Master File Controls

 Inaccurate updating of payroll master data

 Data processing integrity controls
 Regular review of all changes to master payroll data

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 Validation Threats

 Inaccurate time and attendance data

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 Validation Controls

 Inaccurate time and attendance data

 Source data automation for data capture
 Biometric authentication
 Segregation of duties (reconciliation of job-time tickets to
time cards)
 Supervisory review

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 Prepare Payroll Threats

 Errors in processing payroll

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 Prepare Payroll Controls

 Errors in processing payroll

 Data processing integrity controls:
 Supervisory review of payroll register and other reports
 Issuing earnings statements to employees

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 Disburse Payroll Threats

 Theft or fraudulent distribution of paychecks

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 Disburse Payroll Controls

 Theft or fraudulent distribution of paychecks

 Restriction of physical access to blank payroll checks and the check
signature machine

 Restriction of access to the EFT system

 Require proper supporting documentation for all paychecks

 Segregation of duties (cashier versus accounts payable; check

distribution from hiring/firing; independent reconciliation of the payroll
checking account)

 Restriction of access to payroll master database

 Verification of identity of all employees receiving paychecks

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 Disburse Taxes and Deduction Threats

 Failure to make required payments

 Untimely payments

 Inaccurate payments

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 Disburse Taxes and Deduction Controls

 Failure to make required payments

 Untimely payments

 Configuration of system to make required payments using

current instructions from IRS (Publication Circular E)

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 Disburse Taxes and Deduction Controls

 Inaccurate payments
 Processing integrity controls
 Supervisory review of reports
 Employee review of earnings statement

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