No accuracy check of Time summary forms

1
No accuracy check of Time summary forms

• Likely of misstatements
• Unauthorized payments
• Higher Payments
• Validity
• Measurement
• Solution
• The Branch Payroll Administrator should reconcile
  detailed time summaries to the Payroll
  Authorization Form, and should control the supply
  of all Time Summary Forms, including those unused.

2
Auditing Team Number Six

• Auditing the Human Resource Management Payroll
  Process
• By
• Laurie Gauthier
• Kevin Mahendran
• Nigel Duquette
• Siva Sivappiragasam
• Xiaozhe Yan 
• Xi Li

3
Weak IT/ Computer system maintenance

• There is no control to ensure that all electronic
  forms are received
• Unrecorded wage and benefit changes
• Timeliness
• No disaster recovery plan
• Heavy reliance on IT may cause total shut down
  due to man made or natural disaster
• Solution
• Need of a stronger IT/computer system with a
  disaster recovery plan in any form

4
Unauthorized Payments

• Higher unauthorized payments to employees
• Unauthorized wage, salary and commission rates
• Unauthorized issuance of payroll cheque
• Solution
• Sufficient controls must be in place to ensure
  that there are no unauthorized pay rate changes.

5
Summary of the facts

• Better BC Trust Company was one of the largest
  service provider formed in 1982.
• It has 95 branches across Western Canada and
  employees more than 1,400 people.
• The Companys financial statement for the year
  ended June, 30 2004 show salaries of 47.2
  million and 42.14 for the year 2003.
• Based on time summary form payroll administrator
  prepares the payroll authorization form and
  prepares the payroll transactions
• The authorization forms are forwarded to payroll
  processing at the main branch for final review
  and then payments are made through direct deposit
  to the employees account.
• Once payroll processing is complete, a summary of
  the payroll is forwarded to accounting.

6
Organizational Structure
7
Errors/Fraud and controls

• Hiring unauthorized employee
• An independent payroll department is required to
  establish policy
• An independent payroll department should
  determine hiring terminations
• Branch managers submit applications to payroll
  department for approval

8
Errors/Fraud and controls

• Paying employee incorrect salaries
• Payroll prepared by Branch Payroll Administrator
• Approval by Branch Manager
• Processing done by independent department
• Manager of Payroll Processing reviews payroll
  amounts on a regular basis
• Have procedures for determining wages, salary
  withholdings
• More controls are required
• The company has some controls over this function
  but not sufficient
• Lack Procedure over time worked

9
Errors/Fraud and controls

• Recording the hiring of fictitious employees
• Branch manager is responsible newly hired
  employee
• Payroll Manager approves at main branch
• Approval is forwarded to Branch Payroll
  Administrator who would not normally detect
  hiring of fictitious employees

10
Errors/Fraud and controls

• Employee compensations and payroll deductions are
  calculated incorrectly
• Main branch payroll department recomputes,
  applies analytical tools
• Compare with previous period amounts
• Investigate unusual amounts and review of payroll
  register for unusual amounts

11
Errors/Fraud and Controls

• Payments made to employees who have not worked
  (i.e. misstated time records)
• Manager of Payroll Processing reviews payroll
  amounts
• Detect large differences
• Differences investigated at main branch
• Payroll approval by Branch Manager
• Other potential controls
• Use of time clocks
• Approval of time cards from supervisor

12
Errors/Fraud and Controls

• Inserting fictitious employee by preparer of
  payroll
• Branch Manager prepares employee information
• Payroll processing is not involved with hiring
  process

13
Errors/Fraud and Controls

• Payments to unauthorized individuals
• Payroll payment is through direct deposit
• Payment therefore not normally be distributed to
  such individuals
• Payments to terminated employees
• Branch Payroll Administrator approve payroll for
  each individual
• Search for changes in employee records such as
  terminations
• The Branch Manager alters personnel files when
  changes occur

14
Errors/Fraud and Controls

• Misclassification of payroll transactions
• Approval of transactions by Branch Payroll
  Administrator
• Payroll processing department reviews deductions
  and payroll amounts
• Budgets applied and analytical tools applied to
  determine reasonableness
• Forwarded to accounting

15
Errors/Fraud and Controls

• Accessing and altering employee files (salary
  changes, benefits, fictitious employees)
• Use electronic employee forms
• Restricted access only to Branch Manager (use
  passwords)
• Payroll Corporate Manager reviews changes to form
  and ensures proper guidelines followed