LESSON 11 ESSAY
SAVANNAH WAGONER

Employee compensation exemplifies one of the leading and most essential responsibilities of a business. Payroll creates liabilities for a business, and for service organizations is the main expense. That being said, payroll plays a very significant role in the maintenance of a company. The payroll cycle consists of the steps a business takes from the beginning of a payroll period to the end. The steps usually begin with the creation of a payroll system. Following that, hours, pay rate, withholding deductions both required and voluntary, as well as gross pay and take home pay. Calculating these values is very important, and must be done individually per employee. Businesses may do this manually or using a computerized accounting system to do so for them. Regardless of the method used though, the business also must have solid internal controls for the payroll category. These include two main controls, which are, controls for efficiency and controls to safeguard payroll disbursements.

Having incorrect records poses one of the greatest risks that a company faces when it comes to accounting for payroll. This is because it is almost like a domino effect in that when one inaccuracy occurs, several more subsequently result. Manual entries are not necessarily considered to be efficient, because here the risk of error is greater, than the risk using a computerized system. The computerized system creates and stores records, documents, and an array of information, all in one place, and computerized systems are equipped with tools that make calculations, write checks, print checks, etc., all virtually and more efficiently than manually doing so for each employee. However, computerized systems too, have faults and are by no means error free all the time. Thus, the error imposed by inaccurate records. Mitigate risks in payroll by implementing controls. Employees should be given the opportunity to review time entries, hours, and rate of pay. However, managers should too, review this information providing a secondary review. This is helpful in the reduction of indecencies of overcompensation. Segregation of duties, and or, responsibilities is also very important when it comes to internal controls for payroll. This means that each sector should have a department handling its contents. For example, the accounting team should not be the ones setting the employee’s schedules every week, and signing the checks for them when they are printed. Instead, the department of accounting should handle related tasks associated with accounting procedures and journals, etc. Also hiring employees should be separate from passing out the paychecks, and calculating the payroll. This ensures that no single person will be able to create and approve payroll transactions. Furthermore this prevents the risk of misuse of funds within the business. Without implementing the controls throughout the company, unauthorized transactions, and changes to payroll data could take place. This in turn, could cause the business to lose money, and even possibly fail nonetheless. The law requires that employees and employers pay various taxes, which are withheld from paychecks. This value, must also be calculated properly and compensation must be done accurately. Internal controls help to maintain the overall structure of a business and keep things going the way that they should. It’s almost like a little bit of added security within a company that provides reassurance that things are not going to fall off the track and the business won’t become sunken due to failure to provide extra barriers. It is so important that a business whether small, or large, remain secure and internally guarded. This is why internal controls are so significant in businesses. Money is the business’ most essential asset, it makes the world go around. Without protecting the most valuable thing the business has, which is its money, then you can’t necessarily protect any of the entity. As without money, you are destined to fail. That being said, there are two main types of internal control in payroll. They are, controls for efficiency, which keep things efficient and maintain smooth sailing free of errors and impairments, and controls to safeguard payroll disbursements, which are barriers that make sure people in different departments have different duties, respectively.

Works Cited http://accounting-financial-tax.com/2008/10/accounting-payroll-control-system/. (n.d.). http://accounting-financial-tax.com/2008/10/accounting-payroll-control-system/. http://smallbusiness.chron.com/internal-control-procedures-payroll-42238.html. (n.d.). http://smallbusiness.chron.com/internal-control-procedures-payroll-42238.html. http://smallbusiness.chron.com/payroll-system-development-78966.html. (n.d.). http://smallbusiness.chron.com/payroll-system-development-78966.html. http://www.accountingweb.com/blog-post/efficient-tests-balances-series-no-44-key-controls-payroll-and-operating-expenses. (n.d.). http://www.accountingweb.com/blog-post/efficient-tests-balances-series-no-44-key-controls-payroll-and-operating-expenses.
Pearson Education Inc. (2014, 2012, 2009). Horngren's Accounting. In T. Nobles, B. Mattison, & E. M. Matsumura, Horngren's Accounting (p. 434). Upper Saddle River, NJ: Pearson Learning Solutions.