Spring 2009 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

In the automated payroll process, exception reports are an excellent monitoring control. A payroll exception report automatically notifies the payroll clerk of transactions that are outside parameters established in the system, e.g., employees added/deleted since the last payroll, address changes, excessive hours worked, duplicate checks. The report allows the clerk to research those items identified and take any necessary actions. Many companies utilize secondary review procedures on all transactions that flow through the process. By identifying the opportunity to replace these reviews with automated monitoring reports, the integrity of the internal control environment is maintained while reducing the labor required in executing the controls.

Transforming Your Internal Control Environment

So how do you identify these opportunities within your own internal control environment? What are the questions you need to ask to ensure you are not eliminating a control and exposing your company to greater financial or operational risk?

Let’s build on the payroll exception report example mentioned above.

In many payroll processing functions, a common control implemented is a secondary review by the payroll supervisor of all changes made by the payroll clerk. If management were to evaluate this control to identify waste, the following questions should be asked: • By not applying this control, how often would errors be identified? • Are the errors found sizable enough to warrant the labor applied for their identification? • Can management set a tolerance level whereby errors under an established threshold would be acceptable? To transform this manual control into a more efficient and effective control, a payroll exception report can be created to automatically identify edits to hours worked that are outside of an established tolerance. The exception report is routed directly to the payroll clerk’s supervisor,

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