Three Rivers Consulting Services November 13, 2012John Doe, President Fargo Manufacturing2101 E Coliseum Blvd Fort Wayne, IN 46805 | AddressAddressPhoneEmail |
Mr. John Doe,
At Three Rivers Consulting Services, helping our clients improve their businesses is our highest priority. It is therefore our pleasure to submit to you our recommendations for improving your time-keeping and payroll system. We have separated our proposals into three sections: data collection/cost allocation and related controls, processing procedures and related controls, and disbursements. It is the opinion of our auditor team that if implemented these recommendations will provide the most cost savings and increased efficiency for your business. We conclude our report by offering suggestions for implementation of our recommendations.
Data Collection/Cost Allocation & Related Controls
Although not isolated to your payroll cycle, your employee’s time data is collected only at the departmental level. By collecting employee time data for individual production centers, production runs, or specific activities, your accounting department will be better able to track your labor expenses to products. Labor is a significant expense for your company. By directing a greater amount of your hourly payroll into your more profitable lines and away from those that are less profitable, you can reap significant cost savings and add to your bottom line.
Processing Procedures & Related Controls
In your current system, a payroll register is prepared prior to supervisor approval of the time data. We suggest that the departmental supervisors review and approve employee time data and job-time tickets prior to sending it to the payroll department for processing the payroll register. Once the payroll register has been prepared, it should be sent back to each department for final reconciliation with supervisory records. This procedure will minimize any inaccuracies in time data.
Once the final payroll register is prepared, we recommend preparing four additional copies: one each for the accountant, accounts payable, the cost accounting department, and one for the cashier. As in your current system, the cost accounting department will use their copy to prepare a labor cost summary and the accountant will use a copy in order to update the general leger and prepare reports.
Accounts payable will review their copy for accuracy and will then prepare a voucher that is sent to the cashier in order to authorize the payment of wages. The cashier uses his or her copy of the payroll register to reconcile

with the amounts listed on accounts payable’s voucher package. If no inaccuracies are noted, checks are printed by payroll and signed by the cashier. Mr. John Doe | Page 2 | November 13, 2012 |
By separating the custody of cash from the authorization and recording functions, unintentional or intentional misappropriation of funds is minimized. Additionally, by adding several opportunities for review and approval, as well as narrowing and segregating areas of responsibility, employees will have fewer opportunities to make mistakes.
Disbursements
With the number of employees that your company employs, it will be more efficient, less costly, and more accurate to provide direct deposited paychecks via electronic funds transfer. This eliminates the threat of theft of blank payroll checks. EFT transactions should still be reviewed in order to prevent unintentional double payments and other inaccuracies.
Recommendations for Implementation
Although many companies are still using time cards and paper job-time tickets, there is a strong trend toward the use of electronic means of tracking these activities. The main advantage is increased accuracy by removing the need to manually input data into the system. The change-over will require retraining of affected employees and the installation of the needed hardware.
The training of employees involved in the preparation of payroll can be accomplished without outside help. The changes that we propose simply alter areas of responsibility. The new responsibility –holder can be trained by the employee that formerly was tasked with the respective area.
Direct deposit services can be set up through the bank where you keep your payroll and general checking accounts.
Summary
As we have demonstrated, improving the success of your data collection and payroll processing system involves small changes don’t require large initial outlays or extensive retraining of your workforce. We are grateful for your business and look forward to assisting you with the implementation of your changes.

Sincerely,

Jane Doe, CPA
Executive Director
Three Rivers Consulting Services