Essay Sample on Payroll Mistakes: Overpayment of Wages & Unnecessary Expenses

Introduction

The main key assertion at risk is the payment of wages to workers for hours not worked. In the process of preparing payrolls there are situations that, due to the lack of adequate internal control, mistakes can be made in the calculations and monthly payments made to employees thus making the company incur unnecessary expenses. The mistakes that can be made in the process of preparation and payment of payrolls can be the following: Payment of salaries to personnel that does not exist, payments for work that was not done, absence of verification of calculations by a person other than the person who prepares the payroll, lack of authorization of salary payments, incorrect posting, absence of updated personnel files, and lack of documentation that supports the fulfillment of the social and fiscal responsibilities of the employees.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

One preventive internal control that could address the risk is to consider the segregation of duties between the preparation, review, and payment of salaries. It must be verified that there are updated personnel files and that a pre-established order is followed in the documentation that supports each employee's file to avoid improvisation, because the employee files are the basis of the initial information to be consulted by each hired person, from that account (Othman, Ameer, & Laswad, 2019). It must be verified that the following minimum supporting documentation exists: employee admission report, employment contract, and proof of annual vacation enjoyment, among others.

One practical detective internal control that could address the risk is verify that the entity has procedures for each of the processes associated with the liquidation and payroll management in one or several documents, among them, function manual, process manual, flowcharts or others, that allow carrying out the payroll settlement successfully, recording accounting information reliably and reporting information to third parties in a timely manner.

There are several test controls for assessing preventive internal control tools. The use of a tally terminal is the ideal solution. With the current tool, the collected data is transmitted directly into the payroll software, guaranteeing and securing the value of the data, and limiting the need for controls (Rosen, 2016). The procedure to be put in place is the development of monthly timesheets individualized, including the working day, the hours worked, the place, or the customer concerned, even the work done. These cards must be validated by a manager via a signature to ensure data compliance.

The evidence of an exception to preventive internal control is the separation of functions. It will help secure data and limit fraud attempts. Besides, since salaries are subject to discord, data must not circulate outside the persons concerned. The separation of functions will help to limit the "leakage" of information (Othman et al., 2019). The separation of functions also plays a role in the reliability of the data. It is easier to find the mistakes of others than to identify one's own mistakes. The checks must be carried out by someone other than the person who drew up the payslips, preferably with the necessary skills and experience.

There are several test controls for assessing the detective internal control tools. One is the use of permanent targeted checks. It is a matter of systematically and consistently checking the areas in which errors occur frequently or are likely to occur (Rosen, 2016). It should be noted that controls are not carried out exhaustively. It is easy to check all payslips when there are ten employees. This is more tedious with 300 employees. The tests can be performed on a sample.

The evidence of an exception to an internal detective control is if the internal payroll control complies with legal and regulatory texts (collective agreements and labor codes among others). Despite being a process of administrative support in the organization, the payroll management is a vulnerable point when there are unauthorized payments, inefficient settlement payments to employees, unjustified differences between accounting and tax returns, diversion of monies, and other situations that may put the business at risk. For this reason, it is required that, through the internal control audit, situations that mitigate the risk and identify aspects of improvement for the entities are reviewed.

References

Othman, R., Ameer, R., & Laswad, F. (2019). Forensic Auditing Tools in Detecting Financial Statements' Irregularities: Benford's Law and Beneish Model in the Case of Toshiba. In Organizational Auditing and Assurance in the Digital Age (pp. 256-275). IGI Global. Retrieved from https://www.igi-global.com/chapter/forensic-auditing-tools-in-detecting-financial-statements-irregularities/222630

Rosen, B. (2016). Best Practices for Accounting Procedures for Micro, Small, and Medium-Sized Businesses. Ariz. J. Int'l & Comp. L., 33, 317. Retrieved from https://unctad.org/en/PublicationsLibrary/diaeed2013d5_en.pdf