1. Ch. 15 -
HRM / Payroll Cycle

2. Cycle of Business Activities
Capital
Capital
Investment
Investment
Financing
Cycle Sale
Revenue
Cycle
Input General Ledger and
Acquisition Reporting System
Expenditure
Human
Cycle Production Resource
Cycle Payroll Cycle
Hire &
Conversion pay employees

3. HRM/Payroll System
Purpose:
recruiting & hiring Human Resource Dept.
training
job assignment Important to integrate and
performance monitor nonfinancial
evaluation measures & intellectual
Discharge capital
compensation
Employees are the most
Payroll
important asset!!
(Controller’s Dept.)

4. Figure 15-1
Payroll Context Diagram
Payroll Changes Paychecks
Employees
H/R
Reports
Withholdings and deductions
Time &
Attendance
Data Payroll check
Depts. Payroll Bank
Reports System
Rate changes & instructions
Gov't
Payroll Taxes &
Tax Reports Insurance/
Checks & reports
Other
Tax Rates and Instructions

5. Figure 15-1
Payroll Context Diagram
Payroll Changes
Employees
H/R
Withholdings and deductions
Time &
Attendance
Data
Depts. Payroll
System
Rate changes & instructions
Gov't
Insurance/
Other
Tax Rates and Instructions

6. Figure 15-1
Payroll Context Diagram
Paychecks
Employees
H/R
Reports
Payroll check
Depts. Payroll Bank
Reports System
Gov't
Payroll Taxes &
Tax Reports Insurance/
Checks & reports
Other

7. Figure 15-1
Payroll Context Diagram
Payroll Changes Paychecks
Employees
H/R
Reports
Withholdings and deductions
Time &
Attendance
Data Payroll check
Depts. Payroll Bank
Reports System
Rate changes & instructions
Gov't
Payroll Taxes &
Tax Reports Insurance/
Checks & reports
Other
Tax Rates and Instructions

8. Payroll Inputs
Job
Time reconcile Tickets
Cards/
Sheets Commission
Reports
Employment Piecework
Forms Reports

9. Figure 15-4
Payroll Cycle Level 0 DFD abbreviated HRM
Payroll
Payroll Master 1.0 changes
Update
payroll
master file
Threats:
•Unauthorized changes
•Inaccurate information Withholdings
and
deductions
Controls:
•Data integrity controls Employees
•Access controls
•Segregation of duties
•Supervisory review

10. Figure 15-4
Payroll Cycle Level 0 DFD abbreviated HRM
Tax Rates & Deductions
Payroll
2.0 1.0 changes
Update tax Update
rates & payroll
deductions master file
Rates and
Instructions Withholdings
and
Government deductions
Agencies/
Insurance &
other Co’s. Employees

11. Figure 15-4
Payroll Cycle Level 0 DFD abbreviated HRM
Tax Rates & Deductions
Payroll
2.0 1.0 changes
Update tax Update
payroll
rates &Threats: master file
deductions
•Inaccurate information
Rates and
Instructions Withholdings
Controls: and
Government
Agencies/ •Data integrity controls deductions
Insurance &
other Co’s.
•Biometrics
Employees
•Supervisory review
Job Time Tickets
3.0
Various Validate time
Departments & attendance
data
Time Cards

12. Figure 15-4
Payroll Cycle Level 0 DFD abbreviated HRM
Tax Rates & Deductions
Payroll
Payroll Master changes
2.0 1.0
Update tax Update
rates & payroll
deductions 4.0 master file
Prepare
payroll
Rates and
Instructions General Ledger Withholdings
and
Government Threats: Time
Validated deductions
Agencies/
Insurance &
•Processing errors
& Attendance
Data
other Co’s. •Inaccurate information Employees
Job Time Tickets
Controls: 3.0
Validate time
Various •Data integrity controls
& attendance
Departments
•Earnings statements to employees
Time Cards
data
•Supervisory review

13. Figure 15-4
Payroll Cycle Level 0 DFD abbreviated
HRM
Threats: Tax Rates & Deductions
Payroll
•Theft or fraudulent distribution
2.0
Payroll Master of paychecks
1.0 changes
Update tax Update
rates & payroll
Controls:
deductions 4.0 master file
•Physical and logical access controls
Prepare
payroll
•Segregation of duties
Rates and
Instructions General Ledger Withholdings
•Pre-numbered documents
Government
and
Validated Time Payroll deductions
Agencies/ & Attendance
Insurance & Data
other Co’s. 5.0 Employees
Disburse
Job Time Tickets payroll
Paychecks
3.0
Various Validate time Payroll check
Departments & attendance
data Bank
Time Cards

14. Figure 15-4
Payroll Cycle Level 0 DFD abbreviated HRM
Tax Rates & Deductions
Payroll
Payroll Master changes
2.0 1.0
Update tax Update
rates & payroll
deductions 4.0 master file
Prepare
payroll
Rates and
Instructions General Ledger Withholdings
and
Government Validated Time Payroll deductions
Agencies/ & Attendance
Insurance & Data
other Co’s. 5.0 Employees
Disburse
Job Time Tickets payroll
Paychecks
3.0
Various Validate time Payroll check
Departments & attendance
data Bank
Time Cards

15. Payroll Cycle Level 0 DFD (continued) Figure 15-4
abbreviated
Tax Rates & Deductions
Payroll Master
6.0
Calculate Reports HRM
employer-paid
General Ledger benefits and
taxes Reports Various
Departments

16. Payroll Cycle Level 0 DFD (continued) Figure 15-4
abbreviated
Tax Rates & Deductions
Payroll Master
6.0
Calculate Reports HRM
employer-paid
General Ledger benefits and
taxes Reports Various
Departments
Payroll
taxes
and
deductions
Government Checks and
Reports 7.0
Agencies/
Disburse payroll
Insurance &
taxes and
other Co’s.
miscellaneous
deductions

17. Figure 15-2
Systems Flowchart - abbreviated
Daily Payroll Activities
Factory/ Computer HRM
Various Departments Operations
Time Hours Worked HR Transactions -
Clock Update Pay changes
Time on tasks HRM/Payroll Hiring/Firing
Machines Database Other
Payroll
Cost
Transaction
Payroll Data
File
Master (job time
(Time card
File tickets)
data)
Integrated Database

18. Figure 15-2
Systems Flowchart - abbreviated
Weekly/Monthly Payroll Activities
Computer
Operations
Payroll
Payroll
Transaction
Prepare Master
File
File
(Time card Payroll
data)
General
Paychecks Ledger
Payroll Reports
Master
Register File
Cashier
(Treasurer’s Dept.) Management

19. Payroll Entries
Step 1: Charge to payroll clearing account
Dr. Cr.
Payroll Clearing
control account XX
Cash XX
Payroll taxes payable XX
Other deductions payable XX

20. Payroll Entries
Step 2: Allocate labor to various expense
categories
Dr. Cr.
Sales salaries XX
Z
er
o
Admin. salaries XX bn
ac
le
a
Indirect labor XX cc
h
ek
Direct labor XX
Payroll clearing
control account XX

21. Payroll Entries - Employer
Benefits & Taxes
Dr. Cr.
Payroll tax expense XX
F.I.C.A. payable XX
State unemployment taxes payable XX
Federal unemployment taxes payable XX
Other benefits payable (i.e. insurance) XX
Employers must match employee F.I.C.A. tax.
Unemployment taxes are based on various percentages.

22. Payroll System Reports
Special Purpose Reports: Control
• various cumulative Reports
earnings reports
Earnings
Statements/ Payroll
W-2’s Register
Deduction (Journal)
Register

23. Outsourcing Options
Payroll Service Bureau
» Benefits
– reduced costs
– privacy
– free-up computer resources
» Disadvantages
– difficult integration with HRM system
Professional Employer Organization

24. Opportunities for Using I/T
On-line employee access to
benefits/withholding info on company
intranet
direct deposit and EDI
Electronic time clocks
Badge readers

25. Segregation of Duties
Between:
Timekeeping Payroll
and

26. Segregation of Duties
Between:
Timekeeping Payroll
and
Payroll Cash
and
Disbursements

27. Segregation of Duties
Between:
Timekeeping Payroll
and
Payroll Cash
and
Disbursements
Payroll and HR

28. Combating Payroll Threats
Imprest payroll account
unclaimed paychecks sent to I/A
reconciliation of check signing machine
control of time cards/blank checks
segregate payroll distribution
payroll file access controls
file backups

29. HR Controls
Hiring background checks
Government regulation compliance
Control over master file