Skip to content Skip to footer

Segregation of Duties for Payroll Processing

Segregation of Duties for Payroll Processing

Segregation of Duties

Segregation of duties is an essential element of internal control and a critical component of payroll processing, designed to minimize fraud and waste by ensuring that no one person has unlimited access to two different administrative functions.

Different Segregation of Duties

1. Payroll Manager

An essential area of segregation of duties is the payroll manager. Generally, they are not allowed to enter personal payroll or leave data.

At least two employees from each department should be trained on the monthly payroll processing. Both employees must enter each other’s payroll and leave data, and the supervisor must sign the worksheet.

There are several preferred options for departments that do not have additional staff to share timekeeping duties.

2. The Dean or Payroll Clerk Enters the Payroll & Leaves Data

The payroll clerk enters the payroll and leaves the data themselves. To ensure the accuracy of data entry, the department head or designee must review the Personnel Cost Report (PWIPAYR) on a monthly basis. In addition, this report must be signed and dated by the auditor and retained by the authority. The department must complete a voluntary approval form if this option is chosen.

3. Monthly Salary Cost Review

Department heads should review salary costs monthly, which is an essential step in the delegation of authority. The payroll manager has day-to-day responsibility for payroll budgets and calculations, but the primary responsibility in this area rests with the department head or employee.

The Payroll Expense Report (PWIPAYR) provides a complete picture of monthly payroll expenditures. The department head must review, sign, and date this report. The Payroll Expense Report (PWIPAYR) may also be viewed if the department head wishes to see more detailed information.

4. Hours that No One Has Access To

In the unlikely event that no one in the department has access to time entry, contact the payroll department. Or if you are a temporary employee and need help when the primary payroll person is on vacation or sick.

5. Hire and Pay More Employees

When hiring employees and determining their salaries, the person doing the monthly calculations should be independent of the human resources department. Having at least two signatures on hiring and payroll documents is another way to reduce risk.

6. Record Keeping

Payroll personnel maintains essential financial information about employees. Record keeping should be separate from payroll to protect current and past employees and prevent access to sensitive data. Records include recording each person’s name, address, bank routing number, and account number on the company’s payroll. Ideally, the person responsible for recording and documenting this information should not be in the payroll department. This data is best handled by HR staff as it is collected during the recruitment process. It also prevents the creation of non-existent employees and the creation of payrolls.

7. Calculation

Identify the employee whose current salary is to be calculated. For hourly employees, keep a record of hours worked and hourly rate. Keep records of paid time off, sick pay, and vacation pay for salaried employees. In addition, the manager must calculate current wages and deduct current deductions for federal withholding tax, payroll tax, pension contributions, and health insurance. They may also be responsible for preparing quarterly and annual payroll tax returns as part of an appropriate system of internal controls.

8. Power of Attorney

The payroll manager is designated as the payroll authorizer to ensure further control and reconciliation. As the authorized signatory on the payroll account, this individual is allowed to remit payroll and associated taxes electronically. In addition, proper segregation of duties requires that this person does not have access to bank routing numbers or zip codes. This prevents employees from gaining unauthorized access to bank accounts.

9. Validation

This involves verifying the validity and appropriateness of transactions and comparing them to supporting documentation such as employee timesheet numbers. Auditors perform checks and balances by verifying payroll tax returns and recalculating current or past salaries. In addition, employees know that their work has been verified by independent experts, which reduces the risk of fraud.

Share this post with your friends