ch8 contents

risk of calculating wages and salaries

• Employees paid too much

• Employees paid too little

• Employees paid for hours not worked

• Employees who have left still paid

• Unauthorised overtime paid

• Incorrect pay rates used

• Incorrect deductions used

what are control objectives for calculating wages and salaries

• Employees only paid for work actually done

• Gross pay calculated correctly

• Net pay calculated correctly

• Only current employees paid

• Overtime properly authorised

what are controls for calculating wages and salaries

Personnel records maintained

Contains:

• Job details

• Pay rates

• Deductions

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Regular check of payroll to personnel records

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Authorisation of:

✅ New employees

✅ Employees leaving

✅ Pay rate changes

✅ Overtime

✅ Pension deductions

✅ Pay advances

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One-to-one checking of changes to standing data

Standing data examples:

• Salary

• Hourly wage

• Tax code

• Bank details

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Timesheets

or

Clock cards

or

Swipe card system

to record hours worked.

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Review hours worked

Exception reports.

Range checks.

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Payroll compared to budget

Unexpected increases investigated.

what are tests of control for calculating wages and salaries

Check payroll authorised

Inspect signatures/approval.

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Check starters

Agree employee to HR records.

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Check leavers

Confirm removed from payroll promptly.

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Check pay rates

Payroll ↔ Personnel file

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Check overtime

Inspect authorisation evidence.

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Recalculate gross pay

Using:

• Hours worked

• Pay rate

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Recalculate negotiated pay changes

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Test system access

Verify unauthorised changes cannot be made.

what are risks of recording payroll

• Gross pay recorded incorrectly

• Net pay recorded incorrectly

• Deductions recorded incorrectly

• Payroll journal posted incorrectly

• HMRC liabilities incorrect

• Pension deductions incorrect

what are control objectives for recording payroll

• Gross pay accurate

• Net pay accurate

• Deductions accurate

• Payroll correctly recorded

• Correct amounts paid to HMRC

what are controls for recording payroll

Payroll prepared Payroll checked Payroll authorised

Very important.

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Reconciliation to previous payroll

Check unusual movements.

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Compare payroll to budget

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One-for-one check:

Payroll ↔ Personnel records

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Reconcile pay and deductions

Current month ↔ Previous month

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Agree payroll taxes to HMRC returns

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Procedures for unusual payroll items

Examples:

• Bonus

• Redundancy

• Back pay

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Separate personnel records maintained

what are tests of control for recording payroll

Check payroll authorised

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Reperform payroll calculations

Gross pay Tax National Insurance Net pay

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Cast payroll

Check additions.

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Agree payroll totals to summary reports

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Trace payroll journal to ledger

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Check hours worked to:

• Clock cards

• Timesheets

• Swipe records

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Check HMRC calculations

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Check pension deductions

what are risks of paying wages and salaries

• Ghost employees paid

• Wrong employee paid

• Wrong amount paid

• Wrong bank account used

• Payroll fraud

• Employee who left still paid

what are control objectives for paying wages and salaries

• Correct employees paid

• Correct amount paid

• Payments authorised

• Payments match payroll

what are controls for paying wages and salaries

Segregation of duties

Separate:

✅ HR records

✅ Payroll preparation

✅ Payroll payment

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Payroll authorised before payment

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Final payroll report reviewed

Investigate:

• New employees

• Missing employees

• Unusual payments

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Bank transfer list compared to payroll

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Bank transfer authorised

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Monthly review of bank detail changes

Huge modern control.

If bank account suddenly changes:

Investigate.

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Reconciliation of wages control account

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For cash wages (rare)

Physical controls over:

• Cash

• Payslips

what are tests of control for paying wages and salaries

Check payroll approved

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Inspect final payroll review

Check unusual items investigated.

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Check bank transfer list

Compare to payroll.

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Review changes to employee bank details

Check evidence of investigation.

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Verify payroll preparer ≠ payment authoriser

Segregation of duties.

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Check wages ledger reconciliation

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Inspect BACS reports

fake employee added to payroll - what controls to prevent

✅ HR authorises starters

✅ Payroll reviewed

✅ Personnel records reconciled

employee has left - control so not still paid

✅ HR records updated

✅ Payroll compared to HR records

✅ Leavers authorised

excessive overtime - controls

✅ Overtime authorisation

✅ Variance reports

unauthorised pay rise

✅ Authorised pay changes

✅ Restricted access to standing data

what are the most important authorisation controls

Authorisation of:

✅ Starters

✅ Leavers

✅ Changes in pay rates

✅ Overtime

✅ Pension deductions

✅ Pay advances

personnel file

Contains:

• Salary

• Employee details

• Contract

bank transfer list

Payments to employees.