Analysis of the Effectiveness of Internal Payroll Procedures Report

This report comprehensively examines the effectiveness of internal payroll procedures. It begins by outlining various pay methods, including cash, cheque, direct deposit, and pay cards, along with their respective advantages and disadvantages. The report then delves into the appropriateness of these methods against audit requirements, emphasizing the importance of verifying employee status, pay rates, and hours worked. It also covers the design and distribution of payroll outputs, including set-up, employee set-up, payroll, payslips, and monthly salary calculations. Finally, the report explores the application of quality standards to the payroll function, stressing the need for compliance with legislation, segregation of duties, and accurate record-keeping to ensure efficient and compliant payroll processing. The report also analyzes the importance of payroll system design that includes various components and calculations related to employee payroll and organization.

EFFECTIVENESS OF THE
INTERNAL PROCEDURES

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Pay methods and procedures....................................................................................................3
2. Appropriateness of method and procedures against audit requirements.................................4
3. Design and distribution of payroll outputs...............................................................................5
4. Application of quality standards to payroll function with evaluation......................................9
The fundamental requirements of good payroll practices as are-....................................................9
CONCLUSION..............................................................................................................................10
RECOMMENDATION ................................................................................................................10
REFERENCES................................................................................................................................1

INTRODUCTION
Internal control system termed out as set of rules, policies and procedures that
implements by organisation to provide the direction, increase the efficiency and strengthen the
adherence to policies. Businesses are set up to accomplish the specific goals as maintaining their
presence and generating profits (Altamuro and Beatty, 2019). The concept of internal control has
an importance within various sizes, as per the changing characteristics such as size of enterprise,
type of production and objectives. In addition to this, internal control is one of the significant
components as firm protect the data against fraud, theft and error. Henceforth, the common
characteristics of effective internal control is to safeguard the assets, reduction in loss and keep
the financial reports accurate. For the long term success it is essential for the organisation to
follow and adhere to its operational policies.
The controlled environment not only helps to achieve organisational goals but is also
valuable in building a positive work environment within organisation. The ineffective or highly
flexible control system can lead to declined productivity of the employees as well as operational
functions. The present study is based on determine the efficiency of the internal procedures of
payroll function and provide info to stakeholders. The report will discuss the management and
financial information related to payroll outputs. Furthermore, assignment is based on to
evaluate and apply pay method procedures that relates with effective and efficient
administration. Thus, study will also undertake evaluation on application of quality standards to
activities of payroll function.
MAIN BODY
1. Pay methods and procedures
Effective program administration is crucial to coordinate activities, review the program
and to undertake the actions that aids to improve the overall working of the administration.
Henceforth, development administration is termed out as the carrier of innovating values. The
method of payroll is depends on to select business that depends on method of accounting,
technological capabilities and preference of employees (Anh, Thi and Thi, 2020). Henceforth,
payment methods are defined in following manner as are-
Cash- Entity that hire the seasonal staff on short term period use cash system for payroll. If any
company fails to file 1099 forms that they has to face the IRS audit and this can also needs to pay
penalties for unpaid payrolls (Ashbaugh-Skaife and Kinney 2017).

Cheque- The Checks can be defined as commonly used payroll that can be noticeable and
remove the need for the cash transaction. In order to use the check of the enterprise, the entity
needs to operate their activities on the accrual basis of accounting, not on a cash basis (Babaoglu,
Varan and Haznedaroglu, 2020). In addition to this, accrual accounting note both income and
expenses. If the enterprise uses this system that it spend money because the employees checks
can not be able to debited at the time when it is transferred .
Direct deposit- This is defined as system that deposits the cash into the employee accounts at the
set date each month. Henceforth, direct deposit system can be typically use at time when an
entity has low employee turnover rate. In addition to this, employee gives payroll managers the
information about the banking and entity can also creates direct deposit link to each employees
bank. It can be considered as to be the crucial payroll method in which monthly fee is paid by
company to bank for services Cheng, Dhaliwal and Zhang, 2018).
Pay card- The most of the enterprise in the current scenario, pays the card like debit cards that is
attached to the bank accounts (Doyle and McVay, 2017). Therefore, the employees can use the
card as debit card at the retail stores and withdraw cash from the ATM's. It is the payroll
methods that can be beneficial to employees who do not have bank account. One of the a
2. Appropriateness of method and procedures against audit requirements.
Compliance audit can be defined as an independent evaluation that ensure that
organisation is following the external laws, rules and regulations such as firm by-laws, controls
and policies and procedures. Audit is a way that provide the recommendation that provides ways
to make improvements and corrective actions that aids to prevent the future deficiencies and non-
conformities (Elbannan, 2019). Thus, audit assist the organisation to stay in the compliance with
rapidly changing federal regulations. Henceforth, appropriateness of methods of payroll
procedures against the audit requirements as are-
Verify active employee- For each individual that receive the pay check during the quarter needs
to verify that an individual was employed during time period and check is issued. In addition to
this, the particular attention needs to be paid to undertake recent changes within the job status
(Kato, Ando and Maruyama, 2020). It is typical to commit with the fraud of payroll on a smaller
business. In addition to this, one of the most effective method to know about the financial thefts
is by cross checking checks.

Verify pay rate- This can also be undertaken with help to verify pay rate entered in the payroll
processing system. The rates of payroll must be in the writing, need to be approved by the
managers and this has to be filled with the other paperwork.
Review hours paid- This is crucial to undertake the analysis that compare the hours paid to
employees to time clock reports and this is device that can be useful to tracking those device that
use to record employees hours worked (Tollefsen, Neumer and Berg-Nielsen, 2020). There is
need to focus on overtime in the cost that is added and this also push small business over budget
in salaries and wages expense. Thus, the review of each entry for the paid time off needs to be
ensure the employees who received the paid time off.
Comparing payroll reports with ledger- It is significant to compare the total like gross payroll
expenses, tax, etc. with ledger that ensure each payroll processing and this needs to correctly
recorded in ledger (Altamuro and Beatty, 2019). If the enterprise needs to face with the different
salaries and wages accounts such as manager, administrative and sales payroll etc. At this way,
this is crucial to ensure the each category payroll that aids to reflect the correct expense for the
employees within those specified positions.
Review pay roll tax submission- Business payrolls that is inclusive of the social security taxes,
Medicare and remission of federal withholding of employees. In this the total amount of payroll
system needs to ensure reporting for the payroll amounts (Anh, Thi and Thi, 2020). This is
crucial to undertake the compare analysis of the payroll total on the tax remittance report with
the reports that generated total and this also aids to make sure proper calculation of amounts due.
Bank reconciliation review- With the help of to review the bank reconciliation for the payroll
account to check whether all the checks are cleared issue amount and also there is no withhold
payment. Henceforth, this is crucial to review the each payroll that aids to ensure the check and it
cannot be appear within the altered manner.
3. Design and distribution of payroll outputs
A payroll system is designed by including many elements and components taking into
consideration (Ashbaugh-Skaife and Kinney 2017). The efficiency and accuracy of payroll
system depends on it design. here, is an example of design of payroll system.
Set up- This is first stage in payroll designing. here, company name, registration number,
address, tax rate, etc. are included in it. all these things give overview about tax that is
deducted and processing of payroll in organisation.

Business Name
Business Address
Business Reg Number 145789541
Contact Tel Number 20147850
Contact E-mail Abc @gmail.com
Tax Period End February
Current
Tax Year 2020 2/29/2020
Income Tax Rates - Table A
Income Tax Brackets Tax Bracket
Value Tax Rate
Employee set up – it refers to the way in which employee salary is been calculated. Also, the
basic things are calculated and its percentage is decided (Babaoglu, Varan and Haznedaroglu,
2020). The things included in payroll are defined below :-
Earnings List
Code Description 10 Short Name Taxable % Basis
A Basic Salary Basic Monthly
B Commission Comm Monthly
C Annual Leave Leave Annual
D Travel Allowance - Fixed Trav - Fixed 5% Monthly
E Travel Allowance - Reimbursive Trav - Re Monthly
F Bonus - Annual Bonus - Annual Annual
G Bonus - Quarterly Bonus - QTR Quarterly
H Loan / Advance Loan Monthly
Employee
Number
Employee
Name Dept
Date
Employed Job Title ID Number
Income
Tax
Rate
1 A M 3/1/2010 Worker 0987 A
2 B M 3/1/2010 Executive 27 A
3 C S 3/1/2010 Manager 157 A
4 F S 3/1/2011 Team lead 125 A

5 M S 8/1/2011 Sales Representative 115 A
6 E S 8/1/2011 Sales Representative 1285 A
Payroll- This is basic design of payroll system in which pay slip, employee ID, status,
department, etc. is shown. Beside it, detail of each employee is briefly described in this.
Pay Slip
Number
Payment
Run Date
Employee
Number Employee Name Dept Status Earnings1
2020001 3/25/2019 1 A M Active 5000
2020002 3/25/2019 2 B M Active 5000
2020003 3/25/2019 3 V S Active 5000
2020004 3/25/2019 4 Y S Active 5000
2020005 3/25/2019 5 M S Active 5000
Payslip – this slip is provided to employees which contains all details of salary. In this job title,
total salary, tax amount, number of working days, etc. is mentioned. This enables employee to
calculate earnings. The salary slip is provided monthly to them.

Earnings – It includes entire summary of payroll system that include each month details along
with tax that is paid. Moreover, gross and net pay is also calculated of each month separately.
Month Earnings1 Gross Pay Income Tax
(PAYE)
Mar-2019 5000.00 2500.00 1000
Apr-2019 5000.00 2500.00 1000
May-2019 5,000.00 2500.00 1000
Monthly pay- in this monthly details of salary paid to all employees in organisation is
calculated. It consists of information monthly wise along with employee name and total amount
of salary paid to them.
Employee
Number Employee Name Month1 Month2
EXS001 K 10000 15000
EXS002 F 10000 15000
EXS003 W 10000 15000
EXS004 O 10000 15000
EXS005 M 10000 15000
Monthly department – This is similar to monthly salary given to employees, but in this each
department monthly calculation is shown.
Department
Code Department Name Month1 Month2
M Management 50000 100000
S Sales 75000 150000
By analysing design of payroll system, it is evaluated that there are many components
that are taken into consideration. Each component consists of information and calculation related
to payroll of employees and organisation (Elbannan, 2019). Moreover, it is necessary to design
payroll in effective way because it provides details of salary and wages. Also, the financial
information is distributed to other departments such as HR, finance, etc. This gives insight of

total amount, tax paid, etc. Furthermore, bonus, incentives, etc. are also calculated from payroll
system.
4. Application of quality standards to payroll function with evaluation.
Payroll is defined as delivery of acute and timely employee, contractor and their party
salary payments at time when firm is complying with the statutory requirements (Cheng,
Dhaliwal and Zhang, 2018). Also, in time when company policies and procedures and general
principle of maintaining the confidentiality get changed. Henceforth, payroll system needs to
record the data and general reports that mainly contributes within effective decision making,
better governance, effective reward and this also effective in terms to maintain sustainability
within business.
The fundamental requirements of good payroll practices as are-
 To ensure that payroll processing is complained with all kind of legislation and
delegation of authorities and this also inclusive of segregation of the duties. The
individuals in organisation must be aware of the effective payroll practices so that error
free practices can be accomplished. The failure to do so can lead to huge errors or even
money laundering scams within organisation. The payroll systems must be transparent,
easy and in compliance with the legal as well as ethical requirement so that fundamental
rights of employees and other stakeholders are not violated.
 Payroll processing practices are mainly aligned with reward and recognition plan of
action, governance and philosophy of the enterprise.
 Payroll within the firm is planned and paid timely and accurately in accordance with the
firm policies. The timely payroll services are vital for the operational activities as well as
for the effective management of resources. For instance the failure to perform payroll
functions can result in unavailability of purchasing of raw materials. Thus it can lead to
failure in accomplishing business tasks on time. Similarly if employees are not paid on
time then it can create dissatisfaction among them and demotivation can reduce their
productivity. Thus for long term success and maintaining competitive advantage payroll
must be planned and must be in alignment with organisational policies and time frame.
 The payroll process and procedures helps to provide the road map that process the payroll
and internal, external auditing reports.

 This is crucial to have protection of personal information and this also allows to maintain
the levels of security, confidentiality of the information and access to payroll information
that is need to be managed effectively and efficiently. Thus organisation must emphasis
on using payroll system which meet all organisational as well as security aspects of
processing payroll. The failure to meet this aspect can act as major threat for the privacy
of organisational data.
 This is significant to have adequate control over the good pay roll governance and risk
management and this also allows to prevent from fraud.
The following consideration needs to be addressed as-:
 Legislation and statutory requirements- The payroll system needs to be designed and this
adhere to all country statutory requirement, sectorial determination and must be complied
with polices and procedures.
 Employment consideration- All employees needs to be registered with the essential
government departments.
 Professional code of conduct- Remuneration needs to be processes as per the accordance
with minimum wage and agreements (Doyle and McVay, 2017).
 Tax requirement- Employers of the organisation must have the monthly withholding
obligation for income tax and benefits.
CONCLUSION
From the above report it can be summarized that internal control is termed out as the
mechanism that is inclusive of the rules and procedure that needs to be implemented by the firm
to ensure the integrity of financial and accounting information. The present report is based on to
determine the effectiveness of the internal procedures. In order to carry out the payroll function
effectively it is mandatory for the organisation to formulate and implement suitable internal
procedures and control system. The information provided through these systems is also used by
the various stakeholders such as investors, board members, management authorities as well as
employees. It has been analysed from the study that for ensuring the workplace compliance
organisation must also emphasis on audit requirements.
Furthermore, study has focused on the internal control of the enterprise. Also, report has
covered appropriateness of techniques and procedure against audit requirements. In addition to
this, assignment has also covered the design, analyse and distribute financial and management

information. The audit procedures must be chosen in a way such that they meet the
organisational requirements and helps to deliver accurate and satisfactory outcomes from the
audit. It is also concluded from the above discussion that for the long term success and making
fair decisions organisations must also set the suitable quality standards which can be used for
effective audit purpose as well as for maintaining quality. It can also be concluded that
organisation must focus on improving and developing an efficient control and monitoring system
so that payroll inefficiencies and errors can be reduced.
RECOMMENDATION
On the basis of above report, the recommendation to maintain the internal procedure of
the enterprise are defined in following manner as are-
 The enterprise should have payroll checking account that prevents the small errors and
maintain accuracy of the data and information.
 The entity needs to conduct the operation on the basis of automated timekeeping system.
 Thus, the enterprise should take initiatives by having effectively control over to use
payroll software that ensure the accuracy in the employee payments and compliance.
 It is recommended that their must be regular monitoring and controlling of the way
payroll system is used. Individuals must ensure that they have authorised access to the
system and unauthorised employees are not able to access or use the system. This can
also be done by suitable security standards or measures along with the control strategies.
 For better optimisation of the payroll system organisation can also provide appropriate
training to its staff members so that there are no operational or functional inefficiencies.

REFERENCES
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