Chapter 15
The Human Resources Management and Payroll Cycle
15-1
Learning Objectives
Describe the major business activities and related
information processing operations performed in the
human resources management (HRM)/payroll cycle.
Discuss the key decisions to be made in the
HRM/payroll cycle and identify the information needed
to make those decisions.
Identify the major threats in the HRM/payroll cycle and
evaluate the adequacy of various internal control
procedures for dealing with them.
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HRM and Payroll Cycle
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HRM and Payroll Cycle
Managing Employees:
Recruiting and hiring new employees
Training
Job assignment
Compensation
Performance evaluation
Discharge of employees due to voluntary or involuntary
termination
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HRM and Payroll Cycle Activities
1. Update master data
2. Validate time and
attendance
3. Prepare payroll
4. Distribute payroll
5. Disburse taxes and
miscellaneous
deductions
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HRM and Payroll General
Threats
Inaccurate or invalid master data
Unauthorized disclosure of sensitive information
Loss or destruction of data
Hiring unqualified or larcenous employees
Violations of employment laws
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HRM and Payroll General Controls
Data processing integrity controls
Restriction of access to master data
Review of all changes to master data
Access controls
Encryption
Backup and disaster recovery procedures
Sound hiring procedures, including verification of job applicants’
credentials, skills, references, and employment history
Criminal background investigation checks of all applicants for finance-
related positions
Thorough documentation of hiring, performance evaluation, and
dismissal procedures
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Update Master File Threats
Unauthorized changes to payroll master data
Inaccurate updating of payroll master data
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Update Master File Controls
Segregation of duties: HRM department updates
master data, but only payroll department issues
paychecks
Access controls
Data processing integrity controls
Regular review of all changes to master payroll data
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Validation Threats
Inaccurate time and attendance data
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Validation Controls
Source data automation for data capture
Biometric authentication
Segregation of duties (reconciliation of job-time tickets
to time cards)
Supervisory review
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Prepare Payroll Threats
Errors in processing payroll
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Prepare Payroll Controls
Data processing integrity controls: batch totals, cross-
footing of the payroll register, use of a payroll clearing
account, and a zero-balance check
Supervisory review of payroll register and other reports
Issuing earnings statements to employees
Review of IRS guidelines to ensure proper classification
of workers as either employees or independent
contractors
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Disburse Payroll Threats
Theft or fraudulent distribution of paychecks
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Disburse Payroll Controls
Restriction of physical access to blank payroll checks and the check signature
machine
Restriction of access to the EFT system
Prenumbering and periodically accounting for all payroll checks and review of
all EFT direct deposit transactions
Require proper supporting documentation for all paychecks
Use of a separate checking account for payroll, maintained as an imprest fund
Segregation of duties (cashier versus accounts payable; check distribution
from hiring/firing; independent reconciliation of the payroll checking account)
Restriction of access to payroll master database
Verification of identity of all employees receiving paychecks
Re-depositing unclaimed paychecks and investigating cause
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Disburse Taxes and Deduction Threats
Failure to make required payments
Untimely payments
Inaccurate payments
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Disburse Taxes and Deductions
Controls
Configuration of system to make required payments
using current instructions from IRS (Publication Circular
E)
Processing integrity controls
Supervisory review of reports
Employee review of earnings statement
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