Payroll: Risks and Controls

Below are some of the processes that are typically executed before, during, and after a payroll cycle:

• Employees record their hours worked.
• The supervisor reviews and approves each employee's time records with their signature.
• An officer from the Human Resources department updates employee files after receiving authorized records of overtime and leaves (vacations, illness, etc.) from the supervisor. Afterward, approved records are sent to the payroll officer in the accounting department.
• The payroll officer calculates the gross payment, applies deductions, and calculates the net payment. Subsequently, the final payroll is sent for the controller's approval.
• Payments are issued to employees using their preferred delivery method (check or direct deposit).
• Entries are generated for the corresponding payroll transactions.
• Withholdings for payroll taxes, Social Security, and Medicare are respectively remitted to the Department of Treasury and the Internal Revenue Service.
• A record of the final payroll is generated, which is shared with the cash disbursement department, where it is archived.

Depending on the company's size, this process can be carried out entirely manually or electronically.

1. Create a flowchart of the payroll system, assuming that the entire process will be conducted electronically. Divide the diagram into processes related to the employee, the supervisor, and the payroll and human resources departments.