Page 87 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
The Need for Control Systems 2
The most common situation in which a control point is needed is when
an innocent error is made in the processing of a transaction. For example,
a payroll clerk incorrectly calculates the number of hours worked by a

nonexempt employee, resulting in a paycheck that is substantially larger
than would normally be the case.This type of action may be caused by
poor employee training, inattention, or the combination of a special set
of circumstances that were unforeseen when the accounting processes
were originally constructed. There can be an extraordinary number of
reasons why a transactional error arises, which can result in errors that
are not caught, and which in turn lead to the loss of corporate assets.
Controls act as review points at those places in a process where
these types of errors have a habit of arising. The potential for some

errors will be evident when a process flow expert reviews a flowchart
that describes a process,simply based on his or her knowledge of where
errors in similar processes tend to occur. Other errors will be specific to
a certain industry;for example,the casino industry deals with enormous
quantities of cash and so has the potential for much higher monetary loss
through its cash-handling processes than do similar processes in other
industries.Also,highly specific circumstances within a company may gen-

erate errors in unlikely places. For example, a manufacturing company
that employs mostly foreign-born workers who do not speak English
well or at all will experience more errors in any processes where these
people are required to fill out paperwork, simply due to a reduced level
of comprehension of what they are expected to do. Consequently, the
typical process can be laced with areas in which a company has the poten-
tial for loss of assets.
Many potential areas of asset loss will involve such minor or infre-
quent errors that accountants can safely ignore them, hence avoiding the

construction of any offsetting controls.Others have the potential for very

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