C HAPTER 13 The Human Resources Management and Payroll Cycle © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • Questions to be addressed in this chapter include: – What are the basic business activities and data processing operations that are performed in the human resources management (HRM)/payroll cycle? – What decisions need to be made in this cycle, and what information is needed to make these decisions? – What are the major threats and the controls that can mitigate those threats? © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The HRM/payroll cycle is a recurring set of business activities and related data processing operations associated with effectively managing the employee workforce © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The more important tasks performed in the HRM/payroll cycle are: – – – – – – Recruiting and hiring new employees Training Job assignment Compensation (payroll) Performance evaluation Discharge of employees (voluntarily or involuntarily) • Payroll costs are also allocated to products and departments for use in product pricing and mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The most important tasks performed in the HRM/payroll cycle are: – – – – – – Recruiting and hiring new employees Training These two tasks are normally done only Job assignment once for each Compensation (payroll) employee Performance evaluation Discharge of employees (voluntarily or involuntarily) • Payroll costs are also allocated to products and departments for use in product pricing and mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The most important tasks performed in the HRM/payroll cycle are: – – – – – – Recruiting and hiring new employees Training These tasks are done Job assignment repeatedly as long as the employee works Compensation (payroll) for the company Performance evaluation Discharge of employees (voluntarily or involuntarily) • Payroll costs are also allocated to products and departments for use in product pricing and mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The most important tasks performed in the HRM/payroll cycle are: – – – – – – Recruiting and hiring new employees Training In most companies these six Job assignment activities are split between a payroll system and an HRM Compensation (payroll) system Performance evaluation Discharge of employees (voluntarily or involuntarily) • Payroll costs are also allocated to products and departments for use in product pricing and mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The most important tasks performed in the HRM/payroll cycle are: – – – – – – Recruiting and hiring new employees Training The payroll system handles Job assignment compensation and comes under the purview of the Compensation (payroll) controller Performance evaluation Discharge of employees (voluntarily or involuntarily) • Payroll costs are also allocated to products and departments for use in product pricing and mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • The most important tasks performed in the HRM/payroll cycle are: – – – – – – Recruiting and hiring new employees Training The HRM system handles the other five tasks and comes Job assignment under the purview of the Compensation (payroll) director of human resources Performance evaluation Discharge of employees (voluntarily or involuntarily) • Payroll costs are also allocated to products and departments for use in product pricing and mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 87 INTRODUCTION • In this chapter, we’ll focus primarily on the payroll system: – Accountants are traditionally responsible for its function – Must be designed to meet: • Management’s needs • Government regulations – Incomplete or erroneous payroll records: • Impair decision making • Can result in fines and/or imprisonment © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 10 of 87 DISBURSE PAYROLL TAXES AND MISCELLANEOUS DEDUCTIONS • The company must periodically prepare checks or EFT to pay tax and other liabilities © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 53 of 87 OUTSOURCING OPTIONS • Many entities outsource payroll and HRM to: – Payroll service bureaus • Maintain the payroll master file and perform payroll processing activities – Professional employer organizations (PEOs) • Perform the services of the payroll service bureau • Also administer and design employee benefit plans • Generally, more expensive than payroll service bureaus © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 54 of 87 OUTSOURCING OPTIONS • When organizations outsource payroll processing, they send the service bureau or PEO at the end of each period: – Personnel changes – Employee time and attendance data • The service bureau or PEO then: – Prepares paychecks, earnings statements, and a payroll register – Periodically produces tax documents © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 55 of 87 OUTSOURCING OPTIONS • Outsourcing is especially attractive to small and mid-size businesses because: – It’s often cheaper for smaller companies – The bureau or PEO may provide a wider range of benefits – It frees up the company’s computer resources for other areas • However, companies must carefully monitor service quality to ensure that these systems integrate HRM and payroll data in a manner that supports effective management of employees © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 56 of 87 CONTROL: OBJECTIVES, THREATS, AND PROCEDURES • In the HRM/payroll cycle (or any cycle), a well-designed AIS should provide adequate controls to ensure that the following objectives are met: – – – – – – – All transactions are properly authorized All recorded transactions are valid All valid and authorized transactions are recorded All transactions are recorded accurately Assets are safeguarded from loss or theft Business activities are performed efficiently and effectively The company is in compliance with all applicable laws and regulations – All disclosures are full and fair © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 57 of 87 CONTROL: OBJECTIVES, THREATS, AND PROCEDURES • There are several actions a company can take with respect to any cycle to reduce threats of errors or irregularities These include: – Using simple, easy-to-complete documents with clear instructions (enhances accuracy and reliability) – Using appropriate application controls, such as validity checks and field checks (enhances accuracy and reliability) – Providing space on forms to record who completed and who reviewed the form (encourages proper authorizations and accountability) © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 58 of 87 CONTROL: OBJECTIVES, THREATS, AND PROCEDURES – Pre-numbering documents (encourages recording of valid and only valid transactions) – Restricting access to blank documents (reduces risk of unauthorized transaction) © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 59 of 87 CONTROL: OBJECTIVES, THREATS, AND PROCEDURES • Following is a discussion of threats to the HRM/payroll system, organized around three areas: – Employment practices – Payroll processing – General control issues © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 60 of 87 THREATS IN EMPLOYMENT PRACTICES • Objective: • You can click on any of the threats below to get more information on: – The types of problems posed by each threat – The controls that can mitigate the threats – Effectively hire, retain, and dismiss employees • The major threats in the employment practices area are: – THREAT 1: Hiring unqualified or larcenous employees – THREAT 2: Violation of employment law © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 61 of 87 THREATS IN PAYROLL PROCESSING • Objective: • You can click on any of the threats below to get more information on: The types of problems posed by each threat – Efficiently and –effectively compensate employees for – The services provided controls that can mitigate the threats • The major threats in the employment practices area are: – THREAT 3: Unauthorized changes to the payroll mas ter file – THREAT 4: Inaccurate time data – THREAT 5: Inaccurate processing of payroll – THREAT 6: Theft or fraudulent distribution of paych ecks © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 66 of 87 • You can click on any of the threats below to get more information on: GENERAL THREATS – The types of problems posed by each threat – The controls that can mitigate the threats • Two general objectives pertain to activities in every cycle: – Accurate data should be available when needed – Activities should be performed efficiently and effectively • The general threats are: – THREAT 7: Loss, alteration, or unauthorized disclosure of data – THREAT 8: Poor performance © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 79 of 87 KEY DECISIONS AND INFORMATION NEEDS • The payroll system should be integrated with cost data and HR information so management can make decisions with respect to the following types of issues: – Future work force staffing needs – Employee performance – Employee morale – Payroll processing efficiency and effectiveness © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 84 of 87 KEY DECISIONS AND INFORMATION NEEDS • Benefits of an integrated HRM/payroll model: – Access to current, accurate information about employee skills and knowledge – HRM activities can be performed more efficiently and costs reduced • EXAMPLE: Employment application terminals in Wal-Mart – Recruiting costs can be reduced, when applicant data is electronically accessible © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 85 of 87 SUMMARY • You’ve learned about the basic business activities and data processing operations that are performed in the HRM/payroll cycle, including recruiting, hiring, training, assigning, compensating, evaluating, and discharging employees • You’ve also learned about key procedures in payroll processing • You’ve learned how IT can improve the efficiency and effectiveness of these processes © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 86 of 87 SUMMARY • You’ve learned about decisions that need to be made in the HRM/payroll cycle and what information is required to make these decisions • You’ve also learned about the major threats that present themselves in the HRM/payroll cycle and the controls that can be instigated to mitigate those threats © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 87 of 87 ... decision support systems, expert systems, or knowledge databases, so that it can be shared © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/ Steinbart 15 of... produces a variety of reports © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/ Steinbart 13 of 87 INTRODUCTION • Organizational success depends on skilled and... mix decisions © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/ Steinbart of 87 INTRODUCTION • In this chapter, we’ll focus primarily on the payroll system: