Page 42 - Essentials of Payroll: Management and Accounting

Cr eating a Payr oll System
The flowchart does not mention the preparation of a direct deposit
database that can be forwarded to a bank, since it is most unlikely that
a company without means to calculate its payroll on a computer will be
able to create the direct deposit database.Also, the three types of reports

shown in the lower left corner of Exhibit 1.6 will require manual com-
pletion, which would not necessarily be the case if an in-house com-
puterized system were used, as such systems often have the capability to
produce these standard tax reports at the touch of a button.
The controls for an in-house manual payroll process are shown in
Exhibit 1.7. Since there is an assumption that no automated timekeeping
system is in place, two key controls are to verify total hours worked and

to obtain supervisory approval of overtime hours worked. Other con-
trols later in the process are similar to those found in the computerized

EXHIBIT 1.7

Controls for In-House Manual

Payroll Process

Verify Control
hours check stock.
worked.
No
Manually Create and post
Compile Manually Manually
Create
time card calculate calculate generate OK? Yes paychecks. journal entries
for payroll
payroll
totals. wages due. taxes due.
register. transactions.
Obtain Deposit
approval of Fill in withheld and
overtime empty spaces matching
hours on checks. federal
worked. taxes at bank.
Collect Collect Deposit
manual employee withheld state
paycheck change income and
information. forms. other taxes.
Obtain
approval of
pay changes
Review
and negative Perform uncashed Issue checks
bank
directly to
deductions.
reconciliations. checks. recipients.
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