chapter 15 the human resources management and payroll cycle

47) For the payroll register below, all the following processing controls would be useful except Alpha Omega Electronics Payroll RESGISTER Period Ended 12/03/2009 Employee #- 337884 Name-Jarvis Hours-40.0 Pay Rate- 6.25 Groaa Pay- 250.00 Fed. Tax- 35.60 FICA-18.75 State Tax- 16.25 Misc.-27.60 Net Pay- 151.80 Employee #- 37885 Name- Burke Hours-43.6 Pay Rate- 6.50 Gross Pay- 295.10 Fed. Tax- 42.30 FICA- 22.13 State Tax- 19.18 Misc.-40.15 Net Pay- 171.24 Employee #- 37886 Name- Lincoln Hours- 40.0 Pay Rate-6.75 Gross Pay- 270.00 Fed. Tax- 39.20 FICA-20.25 State Tax- 17.55 Misc.-27.90 Net Pay-165.10 Employee #- 37887 Name- Douglass Hours- 44.2 Pay Rate- 7.00 Gross Pay- 324.10 Fed. Tax- 46.60 FICA-24.31 State Tax- 21.07 Misc.- 29.62 Net Pay- 202.50 A) B) C) D)

A) Concurrent update control

9) What is not a desired result of an employee bonus/incentive system? A) Employees may recommend unnecessary services to customers in order to exceed set sales quotas and earn a bonus. B) Employees may look for ways to improve service. C) Employees may analyze their work environment and find ways to cut costs. D) Employees may work harder and may be more motivated to exceed target goals to earn a bonus.

A) Employees may recommend unnecessary services to customers in order to exceed set sales quotas and earn a bonus.

27) Direct deposit of employee paychecks is one way an organization can improve efficiency and reduce payroll-processing costs. Which statement regarding direct deposit is false? A) B) C) D)

A) The cashier does not authorize the transfer of funds from the organization's checking account to a payroll checking account.

46) For the payroll register below, all the following data entry controls would be useful except Alpha Omega Electronics Payroll RESGISTER Period Ended 12/03/2009 Employee #- 337884 Name-Jarvis Hours-40.0 Pay Rate- 6.25 Groaa Pay- 250.00 Fed. Tax- 35.60 FICA-18.75 State Tax- 16.25 Misc.-27.60 Net Pay- 151.80 Employee #- 37885 Name- Burke Hours-43.6 Pay Rate- 6.50 Gross Pay- 295.10 Fed. Tax- 42.30 FICA- 22.13 State Tax- 19.18 Misc.-40.15 Net Pay- 171.24 Employee #- 37886 Name- Lincoln Hours- 40.0 Pay Rate-6.75 Gross Pay- 270.00 Fed. Tax- 39.20 FICA-20.25 State Tax- 17.55 Misc.-27.90 Net Pay-165.10 Employee #- 37887 Name- Douglass Hours- 44.2 Pay Rate- 7.00 Gross Pay- 324.10 Fed. Tax- 46.60 FICA-24.31 State Tax- 21.07 Misc.- 29.62 Net Pay- 202.50 A) B) C) D)

A) Validity check on Fed. Tax

1) Which activity below is not performed by the HRM? A) compensation B) training C) discharge D) recruitment and hiring

A) compensation

16) Why is a separate payroll account used to clear payroll checks? A) B) C) D)

A) for internal control purposes to help limit any exposure to loss by the company

18) What step can be taken to reduce the distribution of fraudulent paychecks? A) B) C) D)

A) have internal audit investigate unclaimed paychecks

7) For recording time spent on specific work projects, manufacturing companies usually use a A) job time ticket. B) time card C) time clock D) labor time card

A) job time ticket.

13) Which type of payroll report contains information such as the employees' gross pay, payroll deductions, and net pay in a multicolumn format? A) B) C) D)

A) payroll register

11) Payroll deductions fall into the broad categories of ________ and ________. A) payroll tax withholdings; voluntary deductions B) unemployment; social security taxes C) unemployment taxes; income taxes D) voluntary deductions; income taxes

A) payroll tax withholdings; voluntary deductions

2) The sales department administrative assistant has been assigning phone order sales to her brother-in-law, a company sales person. Company policy is to pay commissions only on orders directly received by sales people, not on orders received over the phone. The resulting fraudulent commission payments might best have been prevented by requiring that A) B) C) D)

A) sales commission statements be supported by sales order forms signed by the customer and approved by the sales manager.

28) The employer pays a portion of some payroll taxes and employee benefits. Both the employee and employer pay which benefit or tax listed below? A) B) C) D)

A) social security taxes

35) All of the following are controls that should be implemented in a payroll process, except A) B) C) D)

A) supervisors distribute paychecks since they should know all employees in their department.

33) What is the purpose of a general ledger payroll clearing account? A) B) C) D)

A) to check the accuracy and completeness of payroll recording and its allocation to cost centers

52) What is the difference between a payroll service bureau and a professional employer organization?

Answer: A payroll service bureau is a company that can be hired as an independent contractor to maintain the payroll master file and perform the payroll processing activities for an organization. A professional employer organization is a company that provides not only full payroll services but also provides HRM services such as employee benefit design and administration.

50) Why are accurate cumulative earnings records important?

Answer: Accurate records of cumulative earnings are necessary because social security and other deductions have maximum earnings amounts upon which taxes are paid; and the appropriate amount of income and payroll taxes should be remitted to the government agencies. At the end of each calendar year, businesses must prepare and mail summary earnings statements to every employee with earnings that year.

53) Discuss the various types and sources of input into the HRM/payroll cycle.

Answer: An HRM/payroll system relies on input from various sources. Employees provide input when they make changes in their discretionary deductions (contributions to charities or retirement plans); various departments provide data about the actual hours employees work. The HRM department provides information about employees who have been hired or terminated, pay-rate changes, and promotions. Government agencies provide tax rates and various instructions for meeting regulatory requirements. Insurance companies and other organizations provide instructions for calculating and remitting various withholding amounts.

55) Explain benefits to companies and to employees of using electronic direct deposit for payroll.

Answer: Direct deposit of paychecks provide a savings to employers because the costs of purchasing, processing, and distributing paper checks is eliminated. Using direct deposit also reduces postage and bank fees. The cashier's time can be better spent because paychecks do not have to be signed. Employees save time as well as they do not have to make a physical trip to the bank to cash their checks. Direct deposit is safer as it eliminates misplaced paychecks and reduces the possibility of the theft of checks.

57) Discuss the threat of unauthorized changes to the payroll master file and its consequences.

Answer: Many problems may result when there are unauthorized changes to the payroll master file. Unauthorized changes may be made to employee pay rates, resulting in the company paying too much in wages. "Ghost" or "phantom" employees may be added to the payroll master to divert funds to dishonest employees through the issuance of paychecks to such "employees." Likewise, terminated employees may still be paid, resulting in the fraudulent diversion of payroll funds. Two controls that should be implemented and maintained to provide overall control of the payroll master file: proper segregation of duties and controlling access to the file. Good internal control dictates that only authorized HRM personnel be allowed to update the payroll master file for any hiring, termination, pay raise, and promotion. HRM personnel, who have such access to the payroll master file, should never be allowed to directly participate in actual payroll processing or paycheck distribution. This way an adequate control is created to match actual paychecks (or earnings statements when direct deposit is in place) with employees when a manager, supervisor, or other third party hand out the checks (or earnings statements). Also, a different individual should approve all changes to the payroll master file in writing other than the individual who recommends or initiates the changes. User IDs and passwords should always be used to control access to the payroll master file, and an access control matrix should be established to define what actions each authorized employee is allowed to make and confirms the files the employee may access.

49) Identify the two types of payroll deductions and give two examples of each type.

Answer: Payroll deductions include: Payroll tax withholdings such as federal, state, and local income taxes, social security taxes, unemployment taxes; Voluntary deductions such as contributions to a pension plan, premium for group life, etc.

54) Describe benefits and threats of incentive and bonus programs.

Answer: Sales staffs are often paid either on a straight commission basis or a combination of a salary plus commissions. This is done to keep sales at a certain level or to increase sales. The HRM/payroll system will need input from the sales and other cycles to properly calculate commissions and bonuses for such employees. It is important that an incentive and bonus system sets realistic, attainable goals that are congruent with corporate objectives. It is also important that managers monitor incentive and bonus goals and ensure that the attainment of such goals is appropriate for the organization and does not lead to undesirable behavior, which can result from poorly designed incentive schemes.

48) Describe the basic activities in an HRM/payroll cycle.

Answer: The HRM/payroll cycle is a recurring set of business activities and related data processing operations associated with effectively managing the employee work force. Important activities in the HRM/payroll cycle include the following tasks: Recruitment and hiring of new employees. Training. Job assignment. Compensation (payroll). Performance evaluation. Discharge.

56) What factors should be considered in outsourcing payroll to a payroll service bureau? Discuss the advantages and disadvantages of using a payroll service bureau to process a payroll.

Answer: The following questions should be considered: How much does the service cost? How would the data be submittedonline or hand carried? What kind of reports and documents could be obtained from the service bureau? How would the service interface with the existing general ledger system? What resources are now being devoted to payroll and how could these resources be re-deployed into other areas? Could security and control be improved by the outsourcing? What would be the time length of a contract for outsourcing services? Could the service bureau system be integrated so that an online query could be made by the organization? What kind of track record does the service bureau have with other clients? Are there new technologies and approaches that would become available to the company via the service bureau? Advantages: No need to deal with complexity and changes in tax codes. No need to worry about what to do if equipment crashes. Less chance of employees accessing the payroll files (confidentiality). Possible efficiency and cost reductions. Wider range of benefits. Freed-up computer resources. Disadvantages: Less control over the payroll files because they are stored off-site. Extra costs for any special reports. Slower response to ad-hoc queries.

51) Explain the functions of the payroll register, deduction register, and earnings statement.

Answer: The payroll register is a report that lists each employee's gross pay, payroll deductions, and net pay for each pay period. The deduction register lists the voluntary deductions for each employee. The earnings statement lists the amount of gross pay, deductions, and net pay for the current period, as well as providing year-to-date totals.

58) What controls are available to address the threat of payroll errors?

Answer: Three types of controls can be used to circumvent payroll errors in an HRM/payroll system. Batch totals are used to verify totals entered into the system both at the time of data entry and at each stage in the processing. Hash totals are particularly useful in this regard, since hash totals calculated at the time of original data entry and again at each stage in the process can be compared. When the comparisons match throughout the process, three conclusions can be made: 1) all payroll records have been processed; 2) the data input was accurate; and 3) no bogus time cards were entered at any point after initial input. Upon completion of a payroll, the payroll register should be cross-footed to verify that the totals of the net pay column and other deduction columns equal the total of the gross pay column. A third control is the use of a payroll clearing account. This is a general ledger account that can be used as part of a two-step accuracy and completeness process. First, the payroll control account will be debited for the amount of the gross pay for the pay period; cash and other various withholding liability accounts are credited. Second, the cost accounting process distributes labor costs to various expense categories and credits the payroll control account for the total amount of the debits made to the other accounts. The result is that the payroll control account will have a zero balance. This becomes an internal check known as a zero balance check, indicating that the proper postings have been made to all of the accounts associated with payroll for a given pay period.

10) These are used to transmit time and attendance data directly to the payroll processing system. A) Badge readers B) Electronic time clocks C) Magnetic cards D) none of the above

B) Electronic time clocks

21) Which of the following is not a benefit of using a payroll service bureau or a professional employer organization? A) B) C) D)

B) Increased internal control

39) The results of an internal audit finds that there is a problem with inaccurate time data being entered into the payroll system. What is an applicable control that can help prevent this event from occurring in the future? A) B) C) D)

B) automation of data collection

14) Which type of payroll report lists the voluntary deductions for each employee? A) B) C) D)

B) deduction register

19) Companies that specialize in processing payroll are known as A) B) C) D)

B) payroll service bureaus.

12) Which of the following deductions is not classified as a voluntary deduction? A) B) C) D)

B) social security withholdings

25) The document that lists each employee's gross pay, payroll deductions, and net pay in a multicolumn format is called A) B) C) D)

B) the payroll register.

24) The payroll transaction file would contain A) B) C) D)

B) time card data.

41) The average annual middle-management salary at Folding Squid Technologies is $60,000. If the average turnover rate for middle management is ten employees per year, what is the approximate average annual cost of turnover? A) B) C) D)

C) $900,000

43) Which of the following will limit a firm's potential loss exposure from paycheck forgery? A) B) C) D)

C) A separate payroll bank account

20) This organization provides payroll processing as well as other HRM services, such as employee benefit design and administration. A) B) C) D)

C) Professional employer organization

44) Which of the following is a control that addresses the threat of unauthorized changes to the payroll master file? A) B) C) D)

C) Segregation of duties

36) What is the best control to reduce the risk of losing payroll data? A) B) C) D)

C) backup and disaster recovery procedures

26) As the payroll system processes each payroll transaction, the system should also perform which activity listed below? A) B) C) D)

C) both A and B above

4) Which of the following is not one of the major sources of input to the payroll system? A) payroll rate changes B) time and attendance data C) checks to insurance and benefits providers D) witholdings and deduction requests from employees

C) checks to insurance and benefits providers

32) Which control would be most appropriate to address the problem of inaccurate payroll processing? A) B) C) D)

C) cross-footing of the payroll register

15) Which type of payroll report includes the details of the current paycheck and deductions as well as year-to-date totals? A) B) C) D)

C) earnings statement

22) Many companies offer their employees a "cafeteria" approach to voluntary benefits in which employees can pick and choose the benefits they want. This plan is normally called a(n) A) B) C) D)

C) flexible benefit plan.

37) The threat of violation of employment laws relates directly to which activity? A) B) C) D)

C) hiring and recruiting

6) Experts estimate that on average the costs associated with replacing an employee are about ________ that of the employee's annual salary. A) one-quarter B) one-half C) one and one-half D) twice

C) one and one-half

30) The key to preventing unauthorized changes to the payroll master file is A) B) C) D)

C) segregation of duties between the authorization of changes and the physical handling of paychecks.

34) A "zero balance check" refers to which of the following control procedures? A) B) C) D)

C) the payroll clearing account shows a zero balance once all entries are posted

23) Pay rate information is stored in A) B) C) D)

C) the payroll master file.

17) One good way to eliminate paper paychecks is to A) B) C) D)

C) use direct deposit.

5) In the payroll system, checks are issued to A) employees and to banks participating in direct deposit. B) a company payroll bank account. C) government agencies D) All of the above are correct.

D) All of the above are correct.

8) Regarding the use of incentives, commissions and bonuses in payroll, which of the following statements is false? A) Using incentives, commissions, and bonuses requires linking the payroll system and the information systems of sales and other cycles in order to collect the data used to calculate bonuses. B) Bonus/incentive schemes must be properly designed with realistic, attainable goals that can be objectively measured. C) Incentive schemes can result in undesirable behavior. D) All of the above are true.

D) All of the above are true.

42) Which of the following will contribute to the efficiency of a payroll system? A) B) C) D)

D) Direct deposit of checks

3) Which department should have the sole ability to provide information to the AIS about hiring, terminations, and pay rate changes? A) payroll B) timekeeping C) production D) HRM

D) HRM

40) Which of the following is a control that can be implemented to help prevent paychecks being issued to a "phantom" or "ghost" employee? A) B) C) D)

D) Paychecks should be physically distributed by someone who does not authorize time data or record payroll.

45) Which of the following documents would be likely to yield the greatest cost saving by converting from paper to electronic? A) B) C) D)

D) Time card

29) When using electronic documents, ________ increase the accuracy of data entry. A) B) C) D)

D) application controls

31) Which of the following is not a potential effect of inaccurate data on employee time cards? A) B) C) D)

D) inaccurate calculation of overhead costs

38) What is a potential threat to the specific activity of payroll processing? A) B) C) D)

D) unauthorized changes to the payroll master file