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Bookkeeping Information Systems ninth Edition

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  1. Accounting Information Systems9th Edition Marshall B. Romney Paul John Steinbart ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  2. The Human Resources Management and Payroll Cycle Chapter 14 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  3. Learning Objectives • Describe the major business activities and related data processing operations performed in the human resources management (HRM)/payroll cycle. • Identify the major threats in the HRM/payroll cycle, and evaluate the adequacy of various internal control procedures for dealing with them. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  4. Learning Objectives • Explain the key decisions that need to be made in the HRM/payroll cycle, and identify the information required to make those decisions. • Read and understand a data model (REA diagram) of the HRM/payroll cycle. • Create a data model (REA diagram) of the HRM/payroll cycle. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  5. Introduction • Peter Wu is the new vice president for human resources at Alpha Omega Electronics (AOE). • Peter was told to correct two weaknesses in AOE’s human resources management (HRM)/ payroll system: • Lack of adequate service • Inability to track employees’ skill development • AOE has separate HRM and payroll systems. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  6. Introduction • Peter decided to begin by examining how to improve the payroll processing system. • Elizabeth Venko, the controller, and Ann Brandt, vice president of information systems, indicated that it was possible to redesign both activities so that the payroll and HRM systems were integrated ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  7. Introduction • The HRM/payroll cycle is a recurring set of business activities and related data processing operations associated with effectively managing the employee work force. • This chapter focuses primarily on the payroll system. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  8. Introduction • Some of the more important activities include the following tasks: • Recruitment and hiring • Training • Job assignment • Compensation (payroll) • Performance evaluation • Discharge of employees, due to voluntary or involuntary termination ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  9. Introduction The three basic functions the AIS provides in the HRM/payroll cycle are: • Processing transactional data about employee activities • Safeguarding the organization’s assets • Providing information for decision-making ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  10. Learning Objective 1 Describe the major business activities and related data processing operations performed in the human resources management (HRM)/payroll cycle. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  11. Payroll Cycle Activities • What are the basic activities performed in the payroll cycle? • Update master payroll file • Update tax rates and deductions • Validate time and attendance data • Prepare payroll • Disburse payroll • Calculate employer-paid benefits and taxes • Disburse payroll taxes and other deductions ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  12. Update Master Payroll File (Activity 1) • The first activity in the HRM/payroll cycle involves updating the payroll master file to reflect payroll changes such as new hires, terminations, changes in pay rates, or changes in discretionary withholdings. • It is important that all payroll changes are entered in a timely manner and are properly reflected in the next pay period. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  13. Update Tax Rates and Deductions (Activity 2) • The second activity in the HRM/payroll cycle involves updating information about tax rates and other withholdings. • These changes happen whenever updates about changes in tax rates and other payroll deductions are received from various government units and insurance companies. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  14. Validate Time andAttendance Data (Activity 3) • The third activity in the payroll cycle is to validate each employee’s time and attendance data. • This information comes in various forms, depending on an employee’s status. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  15. Validate Time andAttendance Data (Activity 3) • What are some pay schemes? • time cards for those paid on an hourly basis • self report for professionals • straight commission or salary plus commission • incentives and bonuses ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  16. Validate Time andAttendance Data (Activity 3) Procedures: • The payroll department is responsible for validating employee time records. • For factory workers, validation involves comparing the total time worked with the time spent on each job. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  17. Validate Time andAttendance Data (Activity 3) • The payroll clerk calculates batch totals and enters them along with the time data. • The batch totals are recalculated by the computer after subsequent processing steps. • Payroll transaction data are entered through online terminals. • Edit checks are performed on each time and attendance record. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  18. Validate Time and Attendance Data (Activity 3): Opportunities for Using Information Technology • What are some opportunities of using information technology tovalidate time and attendance data (Activity 3)? • collecting employee time and attendance data electronically, instead of on paper documents • using badge readers • using electronic time clocks ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  19. Prepare Payroll (Activity 4) • The fourth activity in the payroll cycle involves preparing payroll. • Data about the hours worked are provided by the department in which the employee works. • Pay rate information is obtained from the payroll master file. • The person responsible for preparing paychecks cannot add new records to this file. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  20. Prepare Payroll (Activity 4) • Procedures: • Payroll processing is performed in the computer operations department. • The payroll transaction file is sorted by employee number. • The sorted time data file is used to prepare employee paychecks. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  21. Prepare Payroll (Activity 4) • All payroll deductions are summed and the total is subtracted from gross pay to obtain net pay. • What are types of payroll deductions? • withholdings • voluntary deductions • Finally, the payroll register and employee paychecks are printed. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  22. Prepare Payroll (Activity 4): Opportunities for Using Information Technology • What are some opportunities of using information technology to prepare payroll (Activity 4)? • produce and distribute payroll reports electronically rather than on paper • online terminals • corporate intranets ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  23. Disburse Payroll (Activity 5) • The fifth activity is actual disbursement of paychecks to employees. • Most employees are paid either by check or by direct deposit of the net pay amount into the employee’s bank account. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  24. Disburse Payroll (Activity 5) • Procedures: • Once paychecks have been prepared, the payroll register is sent to the accounts payable department for review and approval. • A disbursement voucher is then prepared. • The disbursement voucher and payroll register are then sent to the cashier. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  25. Disburse Payroll (Activity 5): Opportunities for Using Information Technology • What are some opportunities of using information technology to disburse payroll (Activity 5)? • direct deposit • outsourcing to a payroll service bureau ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  26. Calculate Employer-Paid Benefits and Taxes (Activity 6) • Some payroll taxes and employee benefits are paid directly by the employer. • Federal and state laws require employers to contribute a specified percentage of each employee’s gross pay to federal and state unemployment compensation insurance funds. • Employers often contribute to health, disability, and insurance premiums. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  27. Calculate Employer-Paid Benefits and Taxes (Activity 6) • Many companies also offer their employees flexible benefit plans. • Many employees are offered and contribute toward a choice of retirement savings plans. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  28. Disburse Payroll Taxes and Other Deductions (Activity 7) • The final activity in the payroll process involves paying the payroll tax liability and the other voluntary deductions of each employee. • An organization must periodically prepare checks or use electronic transfer to pay the various tax liabilities incurred. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  29. Disburse Payroll Taxes and Other Deductions (Activity 7) • The timing of these payments is specified by the respective government agencies. • The funds voluntarily withheld from each employee’s paycheck for various benefits must be disbursed to the appropriate organizations. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  30. Learning Objective 2 Identify the major threats in the HRM/payroll cycle, and evaluate the adequacy of various internal control procedures for dealing with them. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  31. Control: Objectives,Threats, and Procedures • The second functionof the AIS in the HRM/payroll cycle is to provide adequate internal controls to ensure meeting the following objectives: • Payroll transactions are properly authorized • Recorded payroll transactions are valid • Authorized payroll transactions are recorded • Payroll transactions are accurately recorded ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  32. Control: Objectives,Threats, and Procedures • Applicable government regulations regarding remittance of taxes and filing of payroll and HRM reports are met • Assets (both cash and data) are safeguarded from loss or theft • HRM/payroll cycle activities are performed efficiently and effectively ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  33. Control: Objectives,Threats, and Procedures • What are some threats? • Hiring of unqualified or larcenous employees • Violation of employment law • Unauthorized changes to the master payroll file • Inaccurate time data • Inaccurate processing of payroll • Theft or fraudulent distribution of paychecks • Loss or unauthorized disclosure of payroll data • Poor performance ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  34. Control: Objectives,Threats, and Procedures • What are some control procedures? • sound hiring practices (verification of job applicant’s skills, references, and employment history) • thorough documentation of hiring procedures • segregation of duties • batch totals and other application controls ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  35. Control: Objectives,Threats, and Procedures • direct deposit • paycheck distribution by someone independent of payroll process • investigation of all unclaimed paychecks • separate payroll checking account • access control • backup procedures • encryption ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  36. Learning Objective 3 Explain the key decisions that need to be made in the HRM/payroll cycle, and identify the information required to make those decisions. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  37. Information Needs and Procedures • The third functionof the AIS is to provide information useful for decision making. • The payroll system must be designed to collect and integrate cost data with other types of information in order to enable management to make the following kinds of decisions: ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  38. Information Needs and Procedures • Future work force staffing needs • Employee performance • Employee morale • Payroll processing efficiency and effectiveness ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  39. Information Needs and Procedures • Some of the information has traditionally been provided by the payroll system. • Other information, such as data about employee skills, had normally been provided and maintained by the HRM system. • Other information, such as data about employee morale, has traditionally not been collected. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  40. Learning Objectives 4 & 5 Read, understand, and create a data model (REA diagram) of the HRM/payroll cycle. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  41. Recruiting applicants For Payroll Cycle Data Model Applicants Skills (1, N) (1, N) (1, N) Recruiting (1, 1) ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  42. Payroll Cycle Data Model • What is the relationship between skills and recruiting? • one-to-many • It reflects the fact that each advertisement seeks a specific skill and that, over time, there may be several advertisements for a given skill. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  43. Payroll Cycle Data Model • What is the relationship between the recruiting event and job applicants? • many-to-many • Why? • Many people typically apply for each job opening. • A given individual may also respond to more than one recruiting event. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  44. Case Conclusion • Elizabeth and Peter developed a data model. • The new system will allow employees to make direct changes to their benefit options. • Elizabeth plans to use IT to improve the efficiency of payroll processing. • An access control matrix will be created to maintain adequate segregation of duties in the new system and protect the integrity of the HRM/payroll database. ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

  45. End of Chapter 14 ©2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart