Accounting Cycle Description Paper
Team A
ACC/340

Accounting Cycle Description Paper The payroll processing cycle is very time consuming and tedious when done manually. Therefore, the ‘Mom and Pop’s Grocery Store’ has elected to integrate its payroll with a computer software program. With this implementation the payroll process will be more efficient and effective. This paper will explain how the payroll processing cycle for ‘Mom and Pop’s Grocery Store’ integrates onto an enterprise-wide accounting information system. An enterprise-wide accounting information system “focuses on the business process of the organization as a whole” (Bagranoff, Simkin, & Stand, 2008, p. 7). Business process reengineering (BPR) is a total re-design of processes used by an organization that are no longer effective or efficient (Braganoff et al, 2008, p. 163). The ‘Mom and Pop’s Grocery Store’ will use BPR to update the old payroll process to the new enterprise-wide AIS system. The Accounting Information System (ASI) is a system that is put in place for a company to maintain its accounting system. The input devices commonly associated with AIS systems include: “standard personal computers or workstations running applications; scanning devices for standardized data entry; electronic communication devices for electronic data interchange (EDI) and e-commerce” (Business Glossary, p. 1, 2005, 2000, 1995, 1987). In addition, many financial systems come with Internet settings to allow computers to connect to the “World Wide Web.” Simple preparation is accomplished through computer systems from smallest to largest individual computers to smallest and largest company computers. However, conceptually, the underlying processing model is still the "double-entry" accounting system. The output content may encompass almost any type of financial reports from budgets, tax reports, to multinational financial statements. This AIS system will provide the right information to the right people in a timely manner.
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(Murphy, Dr. L., 2009)

Integration The first assignment for the payroll integration is to create a plan of action. Having a plan of action will help keep the integration under control and the team leader should review the plan with other team members to get his or her buy-in to the project (Mind Tools, Ltd., 2009).
Implementation
For the payroll implementation, the source documents needed are employee master file, W-4, direct deposit information, payroll deductions, garnishment details (if any), any paid time off balances, 401k balances, prior taxable wages, Employee Stock Purchase Plan (ESPP), and other accumulators (personal communication, October 1, 2009). The use of payroll earnings and deductions paid to date will ensure the earnings, deductions, and taxes paid are accurate in the new enterprise-wide AIS system. A contact with the bank is necessary to verify that direct deposits will not be affected by the system changes. Once the source documents are gathered, the team leader should decide who will perform the tasks, and designate each task to the best person. A check-off list for the installation of the hardware and software should be set up by the IT member to ensure that any new configuration requirements are set and installation has been done correctly, and tested.
Internal Controls Internal controls are those processes and actions designed to protect a company’s assets and management practices. Additionally, by implementing internal control measures a company can be sure that their financial information is reliable, that the assets and records of an organization are not stolen or destroyed, a company’s policies are followed, and government policies are met. These practices protect the interests of all stakeholder groups and hold a company accountable (Bagranoff et al, 2008). According to the Alliance for Nonprofit Management Organization (2003), the first step in developing an effective internal control system is to identify those areas where abuses or errors are likely to occur. In the case of payroll, accounting errors, abuses, and fraud can occur in a number of ways: the payment of wages to “ghost” employees, improper authorization of disbursements, not acting in good faith as a trusted agent, timely and proper payment of tax deposits, and filing of payroll tax returns to the proper tax authorities. The implementation of internal controls for proper handling of payroll processes ensures the separation of duties, accountability, authorization, review, approval, and the security of assets of the company.
Separation of Duties The website for Blink (2009) provides best practices for separation of duties: (1) enlist different people to process payroll, record personnel data, and provide approval for online payroll actions; (2) someone other than the data entry person should review monthly expense reports; (3) reconciliation of the monthly financial records should be by someone other than the payroll processor; (4) distribution of payroll should be done by yet another person; and (5) employees should not help prepare their own paychecks. The separation of duties serves as a control to catch calculation errors and prevent theft.
Accountability, Authorization, Review and Approval Those who serve in the authorization and review capacity are responsible for making sure that everyone is following company policy and adhering to accounting principles (Blink, 2009). They are responsible to maintain data confidentiality and only certain individuals are authorized to access payroll files. Internal controls would include tasks involved in reviewing and updating signature authorizations, obtaining pre-approval of timekeeping records, and reconciling monthly payroll reports for accuracy of recorded transactions.
Security
The University of Minnesota (2006-2008) enlists security measures in its internal controls that include only allowing appropriate and authorized employees access to the payroll software, and verification of output to input via payroll reports. The person preparing payroll should not be the person signing the check. Additionally, any unclaimed checks need to be accounted for, and all private, sensitive information should be secure.
Automated Internal Controls Automated payroll internal controls miss adequate rigor and are not sufficiently decent for review by senior management to protect assets and secure personnel information. The domestic power structure for the payroll procedure may hardly exist. Open internal controls need approval for the protection of assets in a most proficient way and consist of computerized software and physical assessment controls.
Importance of Payroll Controls Monitoring is an important payroll function that assists in verifying losses, errors, or irregularities. The fiscal reports supply key tool’s to create Overtime analysis, Gross pay, Benefits, and Temporary payroll. Overtime analysis reports enable managers to examine the rationality of overtime expenses for sectors by fiscal year and staff member. The statement for overtime hours can have positions for the key factors to exhibit facts for personnel who receive compensation of full hours that go beyond yearly department values. Gross pay and benefits allow managers to explore the fairness of salaries, earnings and benefits by divisions, finance, plan, development grant, and personnel. Branch managers or designees ought to appraise occasionally individual staff member payment rank for truth and aptness. Temporary payroll analysis allows managers the equanimity of costs for provisional employees by fiscal year and more than five monetary years.
Conclusion
This paper has gone over the accounting cycle transactions and in particular, the payroll processing cycle of a business and how to integrate the necessary information into the enterprise-wide accounting information system. When dealing with payroll, security and confidentiality is the number one internal control. Internal controls are necessary for the information to stay secure, accurate, effective, and efficient. Once the integration into the enterprise-wide accounting information system has been completed, preparation of reports is easier in numerous ways.
References
Alliance for Nonprofit Management. (2003). What internal controls are needed for payroll? Retrieved October 1, 2009, from http://jobfunctions.bnet.com/abstract.aspx?docid=58185
Bagranoff, N., Simkin, M., and Strand, C. (2008). Core concepts of accounting information systems. University of Phoenix e-text. : John Wiley & Sons, Inc. Retrieved September 30 and October 1, 2009, from University of Phoenix, rEsource, ACC/340
Blink. (2009). Internal control practices: Payroll. Retrieved October 1, 2009, from: http://blink.ucsd.edu/finance/accountability/controls/practices/payroll.html

Business Glossary. (2005, 2000, 1995, 1987). Business Definition for: accounting information system (AIS). Dictionary of Accounting Terms. All Business, A Dunn & Bradstreet Company. Barron’s Educational Series, Inc. http://www.allbusiness.com/glossaries/accounting-information-system-ais/4942866-1.html

Mind Tools, Ltd. (2009). Scheduling simple projects. Retrieved October 2, 2009, from http://www.mindtools.com/pages/article/newPPM_02.htm
Murphy, Dr. L. (n.d). Exhibit 3. Dataflow diagram of a payroll processing. System Tool and Techniques for Online Auditing in an E-commerce Environment. Retrieved on September 29, 2009, from http://acct.tamu.edu/smith/system_tools/exhib3.htm
The University of Michigan Controller’s Office/University Payroll Office. Retrieved October 4, 2009 from http://docs.google.com/gview?a=v&q=cache:8LrDWalPRZoJ:spg.umich.edu/pdf/518.01
University of Minnesota. (2006-2008). Internal controls and separation of duties. Retrieved October 1, 2009, from http://www1.umn.edu/ohr/payroll/controls/index.html.pdf+why+are+payroll+transaction+controls+important%3F&hl=en&gl=us&sig=AFQjCNETFGJ9XqlIB9THixcbgnSw23D-iA