Page 304 - Accounting Information Systems

CHAPTE R 6 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 275

Supervision
Sometimes employees will clock in for another worker who is late or absent. Supervisors should observe
the time-keeping process and reconcile the time cards with actual attendance.

Accounting Records
The audit trail for payroll includes the following documents:
1. Time cards, job tickets, and disbursement vouchers.
2. Journal information, which comes from the labor distribution summary and the payroll register.
3. Subsidiary ledger accounts, which contain the employee records and various expense accounts.
4. The general ledger accounts: payroll control, cash, and the payroll clearing (imprest) account.

Access Controls
The assets associated with the payroll system are labor and cash. Both can be misappropriated through
improper access to accounting records. A dishonest individual can misrepresent the number of hours
worked on the time cards and thus embezzle cash. Similarly, control over access to all journals, ledgers,
and source documents in the payroll system is important, as it is in all expenditure cycle systems.

Independent Verification
The following are examples of independent verification controls in the payroll system:
1. Verification of time. Before sending time cards to payroll, the supervisor must verify their accuracy
and sign them.
2. Paymaster. The use of an independent paymaster to distribute checks (rather than the normal supervi-
sor) helps verify the existence of the employees. The supervisor may be party to a payroll fraud by
pretending to distribute paychecks to nonexistent employees.
3. Accounts payable. The AP clerk verifies the accuracy of the payroll register before creating a
disbursement voucher that transfers funds to the imprest account.
4. General ledger. The general ledger department provides verification of the overall process by recon-
ciling the labor distribution summary and the payroll disbursement voucher.

The Physical Payroll System

In this section we examine the physical payroll system. This begins with a very brief review of manual
2
procedures. We then move on to review examples of automated and reengineered payroll systems.

MANUAL PAYROLL SYSTEM
Figure 6-8 presents a flowchart detailing the previous procedures in the context of a manual system. The
following key tasks are discussed.
1. Payroll authorization and hours worked enter the payroll department from two different sources:
personnel and production.
2. The payroll department reconciles this information, calculates the payroll, and distributes paychecks
to the employees.
3. Cost accounting receives information regarding the time spent on each job from production. This is
used for posting to WIP account.

2 At this point you should be able to navigate the payroll document flowchart with little need for supporting narrative.