Question

Discuss tests of controls and substantive tests of transactions for the payroll and personnel cycle. How does this apply to your chosen organization?

Answer 1

Test of Control and Substantive Test of transaction in relates to Payroll and personal Cycle .

We used to follow Substantive Procedure in case of Payroll and personal cycle along with Control Risk assessment . Under substantive Test procedure , we used to cover following activities :

1. Analytical procedure
2. Payroll transactions
3. Fraud identification
4. Review of payroll Expenses- Classes of Payroll Expenses and Accrual Accounting   

We also cover multiple Internal Control and Test of control

In any organization , Importance of payroll and processing cycle applicable for :

1. Salaries, wages and other staff cost – Any organization Employee cost is ONE of the major component
2. Improper classification and allocation of labour cost

Under substantive test method , We need to review following activities :

1. Occurrence – Most important point to note that Wages and Salaries paid only Non Fictitious employee and employee performed worked for specific time period
2. Auditor has to check completeness of all transaction . need to check capturing of data relates to salary , wages , process the transaction , payment , accounting and captured correctly in the financial statement
3. Most important to check Accuracy of the data relates to payroll+ personal
4. Need to ensure that all recorded payroll expense and related accrual and create obligation , liability in the financial statement
5. Need to ensure that all payroll related expenses has been accounted correctly and accrued correct way along with proper classification

While doing more in depth substantive testing , We need to cover below points :

1. Need to ensure proper segregation of duties in relation to Authorization , recording , addition and deletion of employee record
2. Need to recheck and re verify all transaction , need to complete all reconciliation relates to payroll process , personal movement
3. Another important step would be check mathematical accuracy . need to review that al employee has been paid as per company Employee records   
4. In general we need to ensure proper classification of cost

Whole doing substantive procedure, we need to cover “Analytical process”termination o , comparative analysis , may be require to do budget vs Actual variance and review variance analysis track record

Most important step is in each filed we need to review accuracy , correctness , completeness of data , information , documentation , process flow and captured correctly in to financial

We need to ensure that company paid salary , wages only related to Existing employee as per record and employee were actually employed during the payroll period

Another important step to consider regarding Termination of employees. Need to ensure that termination pay in accordance with company Policy

In case of any unclaimed wages , need to determine whether an unclaimed cheque is fraud.

Impact On Organization – Every Organization must have separate HR department to keep record of all active employee . In Attendance register , HR team has to keep record of all clock in and clock out . Month end they used to get complete details of active employee and inform Payroll team to process the payment accordingly .

So in Organization , they do following process in terms of payroll and Personal matter :

1. Occurrence
2. Existence – select payroll process , accrual , supporting documents
3. Completeness
4. Rights and Obligation
5. Presentation and disclosure
6. Any unclaimed wages
7.   Separate track record relates to “ terminated Employees”
8. Separate track record of “ Non existence employees”
9. Check accuracy of data , reconcile payroll summary , pay rate with payroll records
10. Examine evidence of internal verification etc