11RQ - Horngren'S Financial And Managerial Accounting

Question

What are the two main controls for payroll? Provide an example of each.

Step-by-Step Solution

Answer

Two main controls over payroll are i) control for efficiency, ii) control to safeguard payroll disbursement.

Step 1: Control Over payroll

Control over payroll is a must to prevent any fraud or unethical activity. This control is internal as the payroll department is responsible for the same. In this regard, there are two types of control for payroll: 

i)  Control for efficiency

ii) Control to safeguard payroll disbursement

Step 2: Control for efficiency

Control for efficiency is done to make the payroll process transparent and accessible. Most of the payroll processing is done through computers. This helps in storing data, printing paychecks, updating records, etc. 

Step 3: Controls to safeguard payroll disbursements

This type of control is done to prevent any kind of fraud. Safeguarding disbursement helps in ensuring that payments are being made to a particular and real person and the correct amount and not to any fictitious or other people.  Different practices adopted include – using photo IDs, Employee clocks to monitor working hours, etc.