According to Price Waterhouse's booklet, Effective Internal Accounting Control for Nonprofit Organizations is a Guide for Directors and Management. The main goal of internal controls for payroll are to assure that payroll expenditures are made only upon proper authorization to conscientious employees, that payroll expenditures are properly recorded and that related legal requirements are complied with.
A payroll/personnel file should contain updated salary, profits, employment status, and withholding information, also beginning date of employment and termination date, when applicable. Each employee has to have it. A personnel manual should describe the organization's policies, established by the board, concerning vacations, holidays and sick leave. For assuring that all policies are being followed records should be kept for each employee. These records should be held for six to seven years after the employee has been terminated. It is counseled be accountants.
The time sheet considered to be the most common tool. It is used to document employee hours and empower payments to employees. These sheets include information concerning vacation, sick leave, and holidays. They are usually submitted by the employee to his or her urgent overseer for signature. And it is not excepted that senior management may also review them periodically. Preparing paychecks is not the task for the person who authorizes an employee's hours.
All cash expenditures should be taken to the consideration while writing payroll checks. Additional segregation of duties related to the payroll function include having someone other than the payroll check signer:
• Hold unclaimed paychecks.
• Review the payroll register and post payroll to the general ledger.
• Many organizations choose to have a separate checking account for payroll that is used for issuing paychecks. A payroll register lists who was paid, how much, and also check number. It may be maintained, either as a subsidiary journal if there is a separate payroll account, or as part of the cash expenditures journal when payroll is united with other cash expenditures in a manual system. Some organizations demand the next. They want employees to sign the employee register to recognize receipt of their paycheck.
Payroll internal controls checklist
The following questions show common internal accounting controls related to payroll. They are used to determine which areas demand further action.
1. Are detailed time sheets required to document employee hours, including overtime?
2. Are time sheets signed by the employees' immediate supervisor authorizing payment for work?
3. Are employment records maintained for each employee that detail wage rates, profits, and any changes in
4. Do written policies and procedures exist for accounting for vacations, holidays, sick leave, and other profits?
5. Is a separate payroll bank account kept up?