Effective And Efficient Administration Essay

The effectiveness of pay management depends on sufficient communications teen the cost centre managers, Human Resource advisors (HARASS), Human Resources service centre (HRS) and the finance department. Without these teams the payroll function would not have the data required for payroll operations. The SIB payroll has been outsourced to an external provider, Northeast for the past 8 years. The payroll department within SIB consists of a team of five: three payroll administrators, a payroll supervisor and a payroll manager. Collectively they are responsible for overseeing the internal payroll processes and reporting required by the business.

These procedures include pay teeth appropriateness, reporting, internal audit requirements and application of total quality standards within the payroll function. This report sets out to assess the effectiveness of the internal procedures used to administrate the payroll function and the provision of information to other stakeholders. Pay can be described as compensation, discharge or performance Of an obligation, or reimbursement, by giving over something that is of satisfactory value to its recipient, such as money or an amount that is paid or payable. (Business dictionary, definition (2015).

The main objective of the payroll is to ay employees accurately and on time. Failure to meet this objective can result in costly consequences for the employer and can have a detrimental effect on the relationship towards employees. Although a number of other pay methods can be used I. E cash, international money transfers and queue payments, for convenience and security, SIBS chosen methods are BACKS (Bankers Automated Clearing Services) or CHAPS (Clearing House Automated Payment System). It has been said that BACKS enables payments and collections to be made in a convenient and cost effective manner (BACKS corporate homepage, 201 5).

Both methods of aments are clearly detailed in the employee handbook and most importantly in the contract of employment. CHIP (2014) a written statement of employment particulars must be provided within two months of the start date and should include pay rate, pay frequency and pay method. The handbook clearly states that “Your net salary is automatically credited to your nominated bank or building society account via BACKS’ (Employee Handbook, 2015, Pl 1). Monthly BACKS runs are used to process salary payments, PAYEE payments to HUMOR as well as pension and other third party payments.

CHAPS payments are mainly used as a mechanism to process emergency payments outside of the usual payroll cycle. Prior to authorizing the BACKS payments, the SIB payroll team reconciles its expected payroll cost to the payroll summary analysis (AS), and all variances are followed up in collaboration with Northeast. This ensures all payroll data held by SIB payroll reconciles to that which Northeast hold. The reconciliation is signed off by the payroll manager, who requests the BACKS release from Northeast. This is sent via File Transfer Protocol (FTP). The BACKS release form details the total Gross Pay, Net Pay and number of employees being paid.

This is checked against the balances in the SIB reconciliation. The total number of employees being paid is also reconciled between the AS and BACKS release form. The BACKS release form is reviewed by the head of HER and payroll manager following completion of the reconciliation mentioned above. This, together with the funding request form is signed off by a minimum of 2 designated signatories. The signed BACKS release forms, are sent via FTP to Northeast and the funding request is sent to treasury, who allocate funds into the payroll account for payments. Upon receipt, Northeast send the payroll file to BACKS IA secure transmission.

SIB will receive a BACKS submissions report, which confirms the release, payment dates and total value of payments. A three-day processing cycle is followed to ensure employees are paid on time. Reference to this can be seen on (BACKS corporate homepage, 2015). A final process that was been has been added is a full bank reconciliation of the payroll account. This process shows adequate separation of duties. “An effective system of internal controls incorporates separation of duties of accounting functions and other areas that deal with sensitive or valuable data”.

Small Business; 2015) Comprehensive payroll procedures are critical in maintaining effective and efficient payroll functions. Having internal controls helps to create an effective system that allows payroll processing and quality standards to flow effortlessly. Internal controls ensure that correct payments are properly distributed to the employees, accurate records are kept and that all relevant legal requirements are met. Mullions (2010) suggests that “If managers want better performance from total quality management they must implement supportive monetary rewarding practices”.

Therefore, this depicts that investing in your staff and processes will show good results. Six Sigma process is one way of having controls and is said to define, measure, analyses, improve, control, and transfer procedures (Business balls, 2015). The payroll team publish the cut-off dates once a year and share these dates via e-mail and on the share point. The processes at SIB are very manual and involve a lot of checks, which tend to take up a lot of valuable time. HRS is responsible for checking that all the required documentation and information has been received and authorized before sending to the SIB payroll team for recessing.

Payroll then send the data to Northeast via FTP, ensuring that all files are password protected. A log is kept to monitor that the data has been sent and received by Northeast. This is then checked and signed off by the manager after the cut-off date to Northeast. Northeast will then make the changes, calculate the payroll and notify the SIB team once completed. The SIB payroll team complete various checks to ensure all necessary legislation has been applied and all the data changes have been processed accurately. The AS, net pay variance report and CONS reports (Northeast reporting yester) are used to reconcile each payroll.

Any differences are investigated and corrected accordingly before payroll is signed off. Therefore, it is important to have robust checks or controls in place to ensure adequacy and effectiveness of processing the payroll each month. “Having proper procedures in place protects the company’s assets by reducing the risk Of fraud and eliminating errors” (smelliness’s, 2015). The company recently introduced a quarterly deferred compensation payment scheme. It was agreed that payment details would be sent through by the equity and deferred compensation team, in an agreed file upload aroma, password protected, on the set payroll cut-off dates.

Upon receipt of the first file the ETC team did not send it through in the agreed format and argued that they would have to do a lot of file manipulations if they have to use the payroll report layout. Due to time constraints payroll manipulated the file to get it into the correct upload format. As part of audit this process is seen as high-risk, as payments could have been allocated to the wrong employees, causing a breach of employment data protection. (Data Protections Act 1 998, 2015). This method is clearly inefficient and does not meet audit requirements. SIB payroll audits are covered under the umbrella of three main types of audits.

They follow the principles set out by the Institute of Internal Auditors (IA), who defines the field of internal audit to be: “An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes” (IA, 2015). SIB has adopted this to ensure the company improves its processes and improves the effectiveness of risk management.

The internal auditors work on control at the process level, management level and strategic level. The internal auditors perform frequent spot checks across each entity; to evaluate the effectiveness and efficiency of the processes in place. Every quarter audit requests a sample of various data that has been processed. For example, starters, leavers, one off bonus payments etc. The most recent data requested was for the one off donation called “Last hour/First hour”. These donations were meant to be a payment of an hour room December and an hour from January salary.

However, once the payroll had been completed a report was run and audit identified that only one hour had been deducted from each employee. At this point audit questioned how this occurred. Investigation found that the file had only been checked by one person and was a case of human error. Payroll took immediate action by notifying all employees affected and carried forward the required remedial changes to the following pay run. This was also logged as an operational risk. Audit recommendation was to ensure a four eye check is in place given the annual nature of the process.

This incident shows that by having good management controls in place this would help the team achieve its objectives and strategies. Merchant & Van deer Steed defines management control as: “Management control includes all the devices or systems managers use to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies” (Merchant & Van deer Steed, 2003: p. 5). As a result of this the auditors decided to complete a further review of the payroll procedures, to ensure payroll was fully compliant and that good roll governance was in place in all areas.

A sample of starters, leavers, ad hoc changes and statutory responsibility were covered. All starter forms checked were signed by the HRS manager before sending to Northeast. The forms included bank details and relevant tax forms I. E. Starter checklist or APP. All Leaver forms tested showed that final pay had been calculi elated accordingly by Northeast and certified by the SIB payroll team. Overtime forms were tested for approved signatories and checked that the calculations were applied accurately. Checks to a couple of employees on eternity leave confirmed that the correct legislation requirements were met.

To satisfy this payroll were able to provide the necessary MATTIE form as well as the maternity schedule covering the gross payments due for the period of maternity leave. Following this, the auditors felt that payroll did have good controls in place and that the error was just a case of human error. A tax advisor article mentioned that “Process documents can be a straightforward way to implement these frameworks; however, they will only be effective if they are actually followed in practice” (disintermediation; 2015). In the above checks this statement has shown to be true.

Reporting Requirements and Quality Payroll ensures all stakeholders receive quality data and that this meets the business and customer requirements. CHIP describes total quality management as “Meeting customer requirements every time” – (CHIP study material 2015). Various payroll outputs are used when distributing information to different stakeholders, some of which are covered by statutory legislation. The formats of the statutory reports, e. G. APP, Pl 1 D, are governed by legislation requirements, whereas the finance and pension reports have en modified based on the stakeholders’ requirements.

All active employees can view their paisleys online and can keep track of their earrings. SIB is fully compliant in this area as it is a legal requirement. The Employment Rights Act states “An employee has the right to be given by his employer, at or before the time at which any payment of wages or salary is made to him, a written itemized pay statement”. (Right to itemized pay statement – Employment Rights Act 1996, 2015). If nuance department – Northeast send through general ledger (GAL) reports which are checked against the AS by entity.

The payroll team manually input all the balances per the AS report into a payroll template journal spreadsheet. The template indicates which GAL nominal each payroll balance is posted to (this assists in the reconciliation of payroll balances per AS Report with the payroll costing file). Once all balances (gross payroll, net payroll and deductions) are input into the payroll template journal spreadsheet, the net balance should net to nil. This is reviewed and signed off by the payroll manger before posting into FLIT (account software). Finance is then sent a copy of the payroll costing files broken down by cost centre.

HER Department – Northeast send through a fixed element report, which is sent to HER who then reconcile the payroll details to what is held on Peoples (HER database). Any variances are investigated and auctioned in the following pay-run if required. Pension reports – A recent obligation has been introduced to auto enroll employees into the pension scheme. Business gateway outline the requirements as; “Employers have new obligations to enroll most workers into a pension scheme and make contributions towards that scheme on behalf of the employee – this is called automatic enrolment” (businesswoman; 2015).

This process has been adopted and followed for existing and new starters. Proposed pension payments are checked and reconciled against the payroll using the CONS reporting system which has read only access to Northeast. Once reconciled and paid over, payroll upload the pension file into Friends Life. Any refunds are requested directly from the pension provider via e-mail. HUMOR – Payroll have a statutory obligation to process tax and national insurance and any other deductions in accordance with the current legislation.

Failure to meet these requirements would be seen as a implicate failure and could result in penalties. “Pay whatnot owe by the 22nd of the month (or the 19th if paying by post) – you may have to pay interest if you don’t” (HUMOR; 2015). Therefore, as part of real time information (ART), all payments and deductions are sent to HUMOR in a Full Payment Submission (FPS). The pay method used is BACKS and the process is the same as the pay methods used for salary payments. HUMOR complete routine audits to ensure tax legislations are being followed, to ensure the company is compliant with current legislation.

The first notification would be when they contact you. The auditors would review the systems and internal controls establish their effectiveness and where appropriate, provide suitable recommendations (HIM Revenue & Customs: Audit Objectives; 2015). Courts – Monthly reports are run from CONS to pick up any court orders that were deducted. A payment request is raised and checked by the payroll manager and authorized by the head of HER. As stated on HTTPS://WV. Gob. UK/ child-maintenance-for-employers/overview payroll have a legal obligation when deducting court orders.

Conclusion: This report has shown that the SIB payroll team have adequate and effective internal controls designed to manage and deliver the business requirements. However, there is evidence that the level of compliance in some areas may put the system at risk. The BACKS and CHAPS pay methods are suitable for such a large company. Appropriate signatory and authorizations are in place. The procedures are methodical and effective. However, there were two areas of non-compliance with the deferred compensation payment file and Last hour/First hour donations.

The standard day/monthly procedures for starters, leavers and payroll changes are processed accurately and in a timely manner. Reconciliations of the input and output data on payroll are carried out to identify any errors in a timely manner. The stakeholder information provided by Northeast and the reports run from CONS both are in accordance with the company and legislation requirements. These are also regularly monitored and updated when necessary. Although, there are numerous procedures in place there is always room for improvement. The payroll authorized signatory list should be reviewed and updated on a regular basis.

If they are not reviewed regularly this could lead to ineffective practices. Where new processes are introduced, procedures should be written and then reviewed by management. Any reporting requirements should also be reviewed at this point, to ensure it meets audit requirements. A four eye check should be completed on all monthly changes, to avoid an increase in operational risk. There should be rotation of responsibilities on a monthly basis. Ad-hoc system checks should be performed to ensure regulatory obligations are being followed. Ensure you have a strong payroll governance in place. References: What is payment?