Accounting Information Systems 7e
Ulric J. Gelinas and Richard Dull
Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and
South-Western are trademarks used herein under license .
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• Define and understand the basic functions of the HR management and payroll processes.
• Describe the relationship between the HR management and payroll processes and their environment.
• Comprehend the relationship between the HR management and payroll processes and management decision making.
• Depict the logical and physical elements of the HR management and payroll processes.
• Describe some of the technology used to implement the HR management and payroll processes.
• Prepare a control matrix for a typical payroll process, including explanation of how business process control plans can accomplish payroll operations and information control goals.
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• Personnel management started by handling payroll and personnel administration, but evolved by adding functions to handle recruiting, employee relations, and so on.
• HRM still viewed personnel as something that could be controlled
• HCM philosophy is based on three major principles:
1.
An individual’s value to an organization is derived from his/her jobrelated knowledge, skills, attitude, and motivations
2. Human assets include full-time permanent employees, plus part-time employees, temporary employees, and independent contractors.
• With supply chain management , an organization’s human assets could include employees of suppliers, sales channel partners, and customers
3.
A person’s relationship with an organization, from hiring through termination, must be nurtured and managed to obtain maximum lifetime value
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• Primary function of the HRM process is to create information flows that support the following:
1. Repetitive work routines of the HR department
2. Decision needs of those who manage the HR department
• The HRM process supports the work routines of the
HR department and provides information for management decisions by:
– Capturing, recording, and storing data concerning HR activities
– Generating a variety of HR forms and documents
– Preparing management reports
– Preparing governmental reports
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• Many companies often merge payroll and HR
• The payroll process maintains records of payroll taxes, fringe benefits, attendance/absence, time worked and employee paychecks
• The payroll process is generally automated because computers are much faster at handling the repetitive computations necessary (payroll is also the most frequently outsourced application in accounting)
• Current HR software reaches far beyond simply doing payroll and includes:
– Benefits admin, applicant tracking/processing, skills inventories and compliance reporting
• Much of HRM is NOT captured by GAAP
– But accountants must recognize the immense value of human capital and its affect on the long-term financial health of the organization
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• HR self service systems
– HR Manuals
– Retirement programs
– Personal profile
– Expense reports
• Outsourcing
– Web-based collaboration
– Payroll
• Enterprise systems may integrate HRM with
– Financial Accounting
– Logistics
– Sales and Distribution
– The Workflow Module
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Payroll function
• Establishes authorization for payroll event
• Provides inputs
– Pay rates
– Exemptions
– Deductions
• Historical payroll data periodic reporting
– Taxes
– Insurance
– Retirement programs.
HR function
• Determine:
• Employee's assigned department
• Telephone number
• Supervisor
• Locate and manage human capital skills
• Performance evaluation data
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PAY EMPLOYEES
A.
ESTABLISH VARIOUS PAYROLL LIABILITIES
Payroll clearing
FIT withholdings payable
SIT withholdings payable
FICA tax withholdings payable
Accrued payroll
B. RECORD THE DISBURSEMENT OF CASH
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Accrued payroll
Cash
XXXXX
DISTRIBUTE PAYROLL TO VARIOUS ACCOUNTS
Work in process (direct labor) XXXXX
Manufacturing overhead (indirect labor) XXXXX
General and administrative expense XXXXX
Selling expense
Payroll clearing
XXXXX
XXXXX
XXXXX
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ACCRUE EMPLOYER PAYROLL TAXES
Manufacturing overhead (tax on factory workers)
General and administrative expense
Selling expense
FICA taxes payable
SUT taxes payable
FUTA taxes payable
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• RECORD TAX DEPOSITS
FIT withholdings payable
SIT withholdings payable
FICA tax withholdings payable
FICA taxes payable
SUT taxes payable
FUTA taxes payable
Cash
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
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• Types of payroll frauds:
– Ghost employees (employees who don’t exist but are issued paychecks)
– Falsified hours (employees who overstate hours worked)
– Commission schemes (collecting commissions on false sales or using false commission rate)
– Worker’s comp schemes (faking injury to receive compensation)
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• Segregation of duties between HR (employee record creation), payroll (prepares payroll) and AP/cashier (disburses cash)
• Direct deposit (eliminates opportunity for check fraud)
• Review of employee master data for duplicate names and/or social security numbers
• Comparison of actual payroll to budget
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• Reimbursement for employee business expenses often clear the payroll system
– Claiming personal expenses as business related
– Altering receipts to increase expenses
– Submitting false receipts
– Submitting same expense multiple times
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Recommended control plans
A
Present Controls
P-1: Enter time data close to the data’s originating source
P-2: Computer agreement of batch totals
P-3: Approve attendance time data and job time data
P-4: Reconcile attendance time data and job time data
P-5: Distribute labor costs
P-6: Independent paycheck distribution
P-7: Approve payroll transfer check
P-8: Accumulate payroll data for reconciliation of the payroll clearing account
P-9: Use a payroll clearing account
P-10: Prepare miscellaneous reports
P-1
P-4
Control Goals of the Payroll Business Process
Control goals of the operations process
Ensure effectiveness of operations Ensure efficient employment of resources
Ensure security of resources
Control goals of the information process
For time data inputs, ensure: For empl/PR master data, ensure:
B
P-10
C
P-10
P-1
P-4
P-6
P-7
IV
P-3
P-4
P-5
P-6
P-8
P-9
IC
P-1
P-4
P-5
P-8
P-9
IA UC UA
P-1
P-3
P-4
P-5
P-8
P-9
P-2
P-8
P-9
P-2
P-8
P-9
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Control Goals of the Payroll Business Process
Control goals of the operations process Control goals of the information process
Ensure effectiveness of operations Ensure efficient employme nt of resources
Ensure security of resources
For time data inputs, ensure:
For empl/PR master data, ensure:
Recommended control plans
A B C IV IC IA UC UA
Missing Controls
M-1 Independent reconciliation of payroll bank account
M-2 Use an imprest payroll bank account
M-2 Computer agreement of batch totals (agree run-to-run totals)
M-2
M-1
M-2
M-3
M-2 M-2
M-3 M-3 M-3 M-3 M-3
Effectiveness goals include:
A — Provide employees with timely paychecks
B — Provide timely filing of tax returns and other reports to government agencies
C — Comply with requirements of payroll and tax laws and regulations
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• It is common for payroll to be part of the HR module in software (SAP example)
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• The HR module includes options for both HR and payroll, among others
• The advantages gained by allowing the two processes to share common data include:
– Creating a single source for obtaining HR information
– Providing for faster data access
– Minimizing data redundancy
– Ensuring data integrity and consistency
– Facilitating data maintenance
– Improving data accuracy
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• Process Inputs: In general, the HR forms in the figure capture information about three HR-related events:
• (1) selecting employees
• (2) evaluating employees, and
• (3) terminating employees
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• Selecting employees may be initiated in one of two ways:
1. Departmental managers (outside the HR department) may initiate the process to satisfy their immediate hiring needs
2. Selection process may be started by the system automatically
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• Evaluating employees comprises a multitude of activities
– Departmental managers and supervisors
(again, outside the HR function) usually initiate evaluations or other changes affecting employees
– The manager of personnel appraisal and development (in HR) typically approves the review and implements such changes
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• Terminating employees closes the employment process loop
– Periodically, departmental managers and supervisors (in concert with HR managers) must make difficult decisions about the retention of employees
– If a termination is necessary, the employee change screen is used to initiate the process of changing an employee’s status from current employee to terminated employee
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• Processing Logic and Process Outputs.
• HR requests initiated outside of the HR department are approved within that department and then routed to HR for approval
• Some data may be entered within HR
• The employee/payroll master data, skills inventory data, and labor-force planning data within the enterprise database are updated and various reports are made available
• Several outputs are produced
– New hire:
• An employment letter is sent to the employee
• Selection notice is sent to the department manager
– Feedback on job performance:
• Employee review form
– Termination:
• Employees are notified of a dismissal through a dismissal letter
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Termination notice sent to the operating department manager.
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• HRM process prepares reports for government and nongovernment entities
– Payroll reports: employee federal, state, and local taxes
• HR reports might include those provided to the following:
– • Unions
– • Equal Employment Opportunity (EEO)
– • Occupational Safety and Health Administration (OSHA)
– •
Department of Labor
• There are also numerous communications to employees of
HR-related information
– Job opening announcements
– Training information
– Phone books
– Benefits literature
– Policy and procedure manuals, and the like.
• Many companies have found that such materials can be disseminated effectively and efficiently through an HR portal, which serves as a central data source for such information.
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• Though the flowchart shows only one data store, multiple database tables are contained:
– Employee/payroll master data
– Labor-force planning data
• Staffing requirements
• Skills required
• Turnover data
– Skills inventory data
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• Payroll generally falls under the controller’s office with the treasurer participating in distributing paychecks
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• Tax rates data
– Contains current tax rates (federal, state, county and city) for employee withholding and employer accruals
• Attendance time record
– Lists hours employee are at the job site available for work; usually kept on time card
• Job time records
– Start and stop times for particular jobs for direct labor distribution
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• 941 (report of FICA taxable wages)
• W-2 (employee wage and tax statement)
• 1099 (reports non-salary income)
• Employee Retirement Income Security
Act (ERISA) reports (reports on private pension fund assets management)
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