Page 36 - Essentials of Payroll: Management and Accounting

Cr eating a Payr oll System
or signature plates,which are handled by the supplier.Consequently,the
primary controls tend to be at the beginning and end of the process.
As shown in the boxes with bold lettering in Exhibit 1.3, there should
be an approval process for overtime hours worked, as well as for negative

deductions.A negative deduction is essentially a payment to an employee;
if used repeatedly, even incrementally small amounts could add up to a
significant pay increase for an employee.For larger companies with many
employees, you should also compare the addresses on the employee
paychecks to see if a “fake employee” has been added to the system,
with the check being mailed to a current employee’s address to be cashed
by that person.You can also issue a list of the names of people receiving

EXHIBIT 1.3

Controls for the Outsourced
Payroll Process

Review hours Enter hours and Verify totals Receive Compare Issue
from payroll changes with paychecks and OK? Yes addresses on paychecks list
timekeeping into supplier’s supplier or reports from employee to department
system. system. online. supplier. paychecks. supervisors.
No
Obtain
approval of Issue checks
overtime hours directly to
worked. recipients.

Obtain
approval of
pay changes.

Collect
employee
change forms.

Obtain
approval of
negative
deductions.

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