Page 88 - Essentials of Payroll: Management and Accounting

Payr oll Pr ocedur es and Contr ols
high risk of loss, and so are shored up with not only one control point,
but a whole series of multilayered cross-checks that are designed to keep
all but the most unusual problems from arising or being spotted at once.
The need for controls is also driven by the impact of their cost and

interference in the smooth functioning of a process. If a control requires
the hiring of an extra person,then a careful analysis of the resulting risk
mitigation is likely to occur. Similarly, if a highly efficient process is
about to have a large and labor-intensive control point plunked down
into the middle of it,it is quite likely that an alternative approach should
be found that provides a similar level of control, but from outside the
process.

The controls installed can be of the preventive variety, which are
designed to spot problems as they occur (such as flagging excessive hourly
amounts for the payroll data entry staff), or of the detective variety,
which spot problems after they occur, so that the accounting staff can
research the associated problems and fix them after the fact (such as a
bank reconciliation).The former type of control is the best, since it pre-
vents errors from ever happening,whereas the second type results in much
more labor by the accounting staff to research each error and correct it.
Consequently, the type of control point installed should be evaluated

based on its cost of subsequent error correction.
All of these factors—perceived risk,cost,and efficiency—will have an
impact on a company’s need for control systems, as well as the decision
to use the preventive or detective type of each control.

Key Payroll Controls

The types of payroll controls that you should consider implementing will
vary by the type and size of the business, as well as whether the payroll is
processed internally or by a supplier.Because the control risk will vary so
significantly by a company’s individual circumstances, it is best to review

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