Payroll

Controls for Outflows

Payroll

Every corporation has a payroll department, and its primary mission is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions, and to ensure that the correct withholdings and deductions are paid in a timely manner. Unfortunately, for many companies, some of the most common types of fraud occur within the payroll department. As a deterrent, it is important for companies to have and maintain proper controls within their payroll cycle. From an accounting standpoint, payroll and the entities within the payroll cycle are crucial because they can have an affect on a company’s net income. Due to the self-policing nature of the accounts and the regulatory restrictions of the Internal Revenue Service and the Department of Labor, controls over payroll are normally stronger than in other areas (Louwers, Ramsay, Sinason, & Strawser, 2007). It is important for companies to have adequate internal controls in place to discourage opportunities for fraud, theft, and misuse. The following proposal will list the recommended steps that should be implemented to maintain appropriate controls within the payroll department, and describe the importance of maintaining these controls. The four elements of a payroll internal control system are personnel, supervision, timekeeping, and record keeping. These components should be monitored regularly for segregation of responsibilities.

• Personnel and authorization duties include adding new employees to the payroll and deleting terminated employees. Each employee should have a personnel file which contains current salary, benefits, employment status, and beginning date of employment and termination date, when applicable (Payroll, 2011). Terminated employees should have exit interviews so that the personnel department can remove them from the payroll system. Final checks and W-2s should be mailed to the employee’s home (Louwers, Ramsay, Sinason, &...