Page 308 - Accounting Information Systems

CHAPTE R 6 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 279

Control Implications
The strengths and weaknesses of this system are similar to those in the batch system for general expendi-
tures discussed earlier. This system promotes accounting accuracy and reduces check-writing errors.
Beyond this, it does not significantly enhance operational efficiency; however, for many types of organi-
zations, this level of technology is adequate.

REENGINEERING THE PAYROLL SYSTEM
For moderate-sized and large organizations, payroll processing is often integrated within the human
resource management (HRM) system. The HRM system captures and processes a wide range of person-
nel-related data, including employee benefits, labor resource planning, employee relations, employee
skills, and personnel actions (pay rates, deductions, and so on), as well as payroll. HRM systems need to
provide real-time access to personnel files for purposes of direct inquiries and recording changes in em-
ployee status as they occur. Figure 6-10 illustrates a payroll system as part of an HRM system.
This system differs from the simple automated system in three ways: (1) the various departments
transmit transactions to data processing via terminals, (2) direct access files are used for data storage,
and (3) many processes are now performed in real time. We discuss the key operating features of this
system next.

Personnel
The personnel department makes changes to the employee file in real time via terminals. These changes
include additions of new employees, deletions of terminated employees, changes in dependents, changes
in withholding, and changes in job status (pay rate).

Cost Accounting
The cost accounting department enters job cost data (real time or daily) to create the labor usage file.

Time-Keeping
Upon receipt of the approved time cards from the supervisor at the end of the week, the time-keeping
department creates the current attendance file.

Data Processing
At the end of the work period, the following tasks are performed in a batch process:
1. Labor costs are distributed to various WIP, overhead, and expense accounts.
2. An online labor distribution summary file is created. Copies of the file are sent to the cost accounting
and general ledger departments.
3. An online payroll register is created from the attendance file and the employee file. Copies of the files
are sent to the AP and cash disbursements departments.
4. The employee records file is updated.
5. Payroll checks are prepared and signed. They are sent to the treasurer for review and reconciliation
with the payroll register. The paychecks are then distributed to the employees. 3
6. The disbursement voucher file is updated and a check is prepared for the funds transfer to the
payroll imprest account. The check and a hard copy of the disbursement voucher are sent to cash
disbursements. One copy of the voucher is sent to the general ledger department, and the final copy
is sent to AP.
7. At the end of processing, the system retrieves the labor distribution summary file and the disburse-
ments voucher file and updates the general ledger file.

3 For added internal control, many companies encourage their employees to have their checks directly deposited into their bank
accounts.