MQM 354 Exam 3

How can an EIN be canceled?

If the principal officer's name and SSN do not match IRS records

U.S. v. Home Concrete Supply, LLC case

In 2012, the U.S. Supreme Court issued specific guidelines to the IRS about the statute of limitations for audits. In U.S. v. Home Concrete Supply, LLC, the Court directed the following guidelines about records audits: Three years to assess a taxpayer's deficiency. Six years if the taxpayer's gross assets were understated by more than 25 percent. Unlimited time if intent to commit fraud exists.

What must an EIN accompany?

Tax deposits and payroll tax returns. States may issue a different identifying number

As of 2016, the estimated amount of child support transferred between parents in the United States exceeded?

$41.7 billion per year

How much money is owed to the government in regards to outstanding unpaid child support?

$53 billion

Why do new hire reports exist?

- Child support tracking with PRWORA - Employment eligibility verification - Permanent resident alien tracking - Other Garnishments, like credit car debt or court ordered judgments

What are types of Non-Confidential Documents?

- Expense receipts, vendor invoices, and check copies.

What are some employer payroll concerns?

- Pay frequency - Pay types - Employee Benefits - Pay advances - Confidentiality - Fraud Protection

Specific classes of employees may receive less than minimum wage according to FLSA if:

-Workers under age 20 may receive $4.25/hour during the first 90 days of employment. -Employer may obtain a certificate to pay disabled workers less than minimum wage. -Full-time students working in retail, agriculture, or for their school may receive 85% of minimum wage. -Students in vocational programs may receive 75% of minimum wage.

What are the types of software packages available for computerized payroll systems?

. Common software packages include QuickBooks, Sage50, and Microsoft Dynamics GP. Custom-built software packages also exist and may provide workable solutions for employers

IRS Regulation 26 CFR 1.6001

Employer responsible for file maintenance Recommends labeling and storage of backups Employer must guarantee auditor access

According to the federal Office of Child Support Enforcement, how much outstanding unpaid child support is owed to parents?

$108 billion

What are the five main review process elements:

1. Managerial verification 2. Payroll computation verification 3. Pay amount approval 4. pay disbursement preparation 5. pay disbursement approval

What are the three main elements of internal controls?

1. Review at regular intervals so that managers can: 2. prevent errors and losses and 3. plan strategically

Two options to determine the amount of Federal income tax to be withheld from employee's pay

1. Wage-bracket method. The wage-bracket tables are published each year in Publication 15 (also known as Circular E) from the IRS. The wage-bracket method is simple to use because it breaks down the withholding amounts by pay frequency, marital status, number of exemptions, and taxable income. 2. Percentage method. This method uses the same information as the wage-bracket method, but involves a series of mathematical computations. It is often used for unusual pay situations or for employees whose gross pay for the period is not contained in the wage-bracket tables.

How long after an employee termination should the employer retain pay records for?

7 years

Example of payroll fraud occurrence

A payroll specialist in Florida was HIV-positive, and was afraid to reveal his illness to employers. Instead, he took the money from his employer to pay for expensive medications. He would memorize his coworkers' usernames and passwords to create "ghost" employees. These ghosts' pay would go to the payroll specialist's bank account. He would falsify the payroll summaries he submitted for approval. The payroll specialist was found guilty of embezzling $112,000 before his termination.

General Journal Conventions

Under GAAP, the General Journal has a few significant conventions: The date of the transaction accompanies each transaction The Debit part of the transaction is recorded on the first line and is written flush-left in the column The Credit part of the transaction is recorded on the second line (or after all debts have been entered) and is indented slightly. A brief description of the transaction follows the credits and is indented more than the credits. Account numbers are listed in the post reference column.

What are document destruction procedures?

Upon expiration of the retention period, the employer must destroy the records. Paper records must be shredded, burned, or pulped. Computer records must be purged from servers and all backups must be destroyed. Any breach result from unauthorized access to old employer records is still the liability of the employer.

A federal tax credit up to $9,600.00 is given to employers hiring which target groups?

Veterans, TANF recipients, SNAP (food stand) recipients, Designated Community Residents, Vocational Rehabilitation Referral, Ex-felons, Summer Youth Employees, and Supplemental Security Income Recipients.

Computing Gross Pay

computation of pay as hours and fractions of hours. Payroll accountants need to be able to convert fractions to decimals for this purpose. The easy way to convert minutes to portions of an hour is to divide the number of minutes by 60 minutes per hour.

Northfolk Commnity Service Board case

employee who collected pay and benefits for 12 years without showing up for work. Paid: $320,000, Benefits: ~ $80,000 Employee took a six-year break from work and still got paid before his bosses finally discovered the ruse Paid: $252,000 Fined: $30,000

What is the payroll register?

is a tool that the accountant uses to ensure the accuracy of payroll computations prior to pay disbursement. The payroll register is only for internal company use and should not be published. It contains all data for the payroll period, including wages, gross pay, deductions, net pay, and disbursement information.

What should the final pay for each type of termination pertain?

must contain all hours worked during the final pay period, compensation for vacation and applicable sick time, and any other compensation owed. The final pay requirements for voluntarily terminated employees is consistent in that the final disbursement occurs at the next pay day. The laws for involuntarily terminated employees vary among states.

What is a common occurrence in payroll accounting?

that the period end may not match the payroll period. When this occurs, the payroll accountant must record the payroll that is earned but not disbursed, which is known as an accrual. This accrual appears as an adjusting entry.

How does the IRS keep track of employer tax remittance?

the Employer must obtain an Employer Identification Number (EIN)from the IRS. This number must appear on different payroll-related reports. To obtain an EIN, the employer files Form SS-4 with the IRS prior to paying employees.

Documentation Retention: Regulation 26 CFR 1.6001

the IRS mandates seven years' retention of and access to records. It should be noted that in the event of suspected fraudulent activity, the records associated with the fraud must be retained indefinitely. The employer remains responsible for maintenance of the records, even when they outsource the payroll.

What are the challenges smaller companies face in regards to payroll accounting?

Availability of trained personnel to administer payroll, cost of computerized accounting systems, and cost of outsourcing payroll

Why are payroll services an important service for many large companies?

Because of the complexity that large payrolls present. Large companies often have web portals for employees to access payroll records and to process payroll changes.

What are some pay types?

Direct deposit, paycards, paper checks

What are mandatory deductions from gross pay?

Federal, State, and Local income taxes. Social Security and Medicare Taxes

Pre-Tax voluntary deductions: Cafeteria Plans

Flexible spending accounts such as cafeteria plans are amounts that an employee may set aside for expected prescriptions costs, doctor's visits, child care expenses, and other qualifying expenses. Amounts for a cafeteria plan are decided upon by the employee, withheld in increments from the employee's pay, and must be used by a certain date (usually by the end of the year, with March 15 of the following year as the final date to submit receipts) or else be forfeited. Health savings accounts differ from Flexible spending accounts in that they are designed for long-term care expenses.

What are Payroll Tax Returns?

Forms 940, 941, 944 Forms W-2 and W-3 Any 1099s (independent contractors)

Quarter-hour vs. Hundredth-hour system

Quarter hour: time rounded to the nearest 15-minute (rounding results in 8 hours each day) Hundredth hour: divides hour into 100 increments (offers more precise time tracking)

IRS Revenue Procedure 98-25

Record keeping duration for employers Must include payroll transaction detail Record derivation of executive pay All pay must be benchmarked and justified

What are voluntary deductions from gross pay?

Retirement plans, cafeteria plans, and insurance

Why should payroll involve more than one employee to prevent against fraud?

Separation of duties. There should be enough employees involved to ensure confidentiality and rotate duties. An important practice is the involvement of more than one person in the payroll disbursement generation process. Employee duties should be documented to verify that tasks are completed and to prevent again fraud.

What accompanies the payroll register?

The employee's earning record

What is involved in manual payroll systems?

The payroll accountant must remain current and knowledgeable about payroll regulation, tax rates, and legislative changes. Manual payroll involves the calendaring of payroll-related dates. In a manual system, the accountant may elect to use spreadsheet software or a manual accounting ledger.

What are the benefits to outsourcing payroll systems?

They alleviate the need for trained and dedicated in-house payroll accountants -The external companies who manage the payroll are specifically trained in payroll and maintain their knowledge of payroll regulations. The employer is still accountable for the accuracy of payroll records and must approve of the payroll company's disbursements.

Example of CEO Financial Resposibility: Perrenod v. U.S.

This case pertains to the ethics involved in an embezzlement case. In this case, the CFO had embezzled payroll funds. The CEO was found liable for restitution although he himself did not commit the crime. Perrenod v. U.S. The CFO had issued the tax remittance checks to himself. CEO claimed ignorance of the missing tax remittances. The Supreme Court ruled that Perrenod was liable for all penalties because he was CEO.

Why are electronic records a best practice for payroll?

This involves a closed system, in which access is limited to few employees who require the information as part of their company function. Electronic records should also have some sort of identifier and logging method to determine when the file was accessed and by whom. Most important, employers who maintain computerized payroll records must be vigilant against computer hackers

What are "pre tax" deductions?

This means that they are deducted from the gross pay before computing any taxes. Pre-tax deductions reduce the amount of an employee's taxable income, which means that they have a lower tax amount withheld from their gross pay.

Total, Prove and Rule the Register

Total: Each column and row are totaled Prove: The column totals are added horizontally AND row totals are totaled vertically. The aggregate column and row totals must be equal. Rule: Column totals are double underlined to show that the totals have been proven.

What are types of Confidential Company Documents?

All payroll and personnel records are regarded as confidential and access to them should be restricted to the employees and officers of the company who require access in the course of their job according to the Privacy Act of 1974. Any fraud-related documents may be subpoenaed at any time and must be accessible to government authorities

Pre-tax voluntary deductions: Retirement

Another class of pre-tax deductions includes retirement plans. Some examples are 401 (k) or 403(b); SEP; ESOP; SIMPLE 401 (k); IRA; and SIMPLE IRA. It is up to the employer to decide if they will offer a retirement plan and which type is best suited for their firm.

Examples of different state final pay regulations for involuntarily terminated employees:

Arkansas: Within seven days of discharge Nevada: Immediately upon discharge California: At time of discharge New Hampshire: Within seventy-two hours Colorado: Immediately upon discharge New Jersey: By the next regular payday Connecticut: No late than the next business day New Mexico: Within 5 days when wages are definite, otherwise within ten days if wages are indefinite Georgia: No termination pay guidelines Oklahoma: Next regular payday for the pay period Idaho: Within ten days, excluding weekends and holidays Pennsylvania: Next regular payday Illinois: No later than the next payday, immediately if possible Rhode Island: Next regular payday

Assets = Liabilities + Owner's Equity

Assets: Cash or other items that are used in the operation of the business and amounts owed to the company by customers Liabilities: Amounts owed by the business to other people or companies Owners' Equity: The net investment that the owner has in the business, including earnings kept in the business

What are third class deductions?

Court-ordered amounts such as garnishments for child support or union dues

What is the employee's earning record?

It is the link that connects the payroll accountant with the human resources department. The payroll register is maintained for each pay period, and the employees' earnings records is for each employee. It contains the data about the employee, like the address, marital status, wage or salary information, voluntary deductions, and any changes that occur. The employees' earnings records facilitate the preparation of periodic tax reports by containing employee-specific period-to-date information. It also informs the payroll accountant about wage bases for tax deduction purposes.

Why is file security an important part of internal control?

It not only protects the company, but also safeguards governmental payroll tax obligations. The IRS lists many payroll fraud cases in which the employees were compensated, but the governmental obligations were not. The IRS issues severe penalties for perpetrators.

What should the payroll register contain?

Large amount of information (martial status, regular pay, overtime pay, SS tax withheld, etc.) It should have all information the payroll accountant needs to withhold the correct amount of mandatory and voluntary deductions. The payroll register should also facilitate transparency in the payroll process and in the audit trail. Depending on the firm and its location, there may be greater or fewer columns for earnings and deductions.

Since smaller companies have fewer employees, payroll may be?

Less complex even though they have similar payroll concerns as larger companies as far as data collection methods. For example: they can use a cloud-based payroll service option

Pre-tax voluntary deductions: Insurance

Many of the qualified pre-tax deductions are insurance related. Health insurance is one of the most common pre-tax deductions. Cafeteria plans (also known as Section 125 plans) are another common pre-tax deductions. Other insurance-related pre-tax deductions are supplemental health and disability insurance, short-term disability, and long-term disability insurance.

When pay periods cover more than one week, multiples of the weekly restrictions must be used to calculate the maximum amounts that?

May be garnished

What are some file security measures?

Multiple passwords Cross-training personnel Electronic encryption of confidential records Restricted access to payroll and personnel records Rotation of duties

Who is the EIN mandatory for?

Partnerships and corporations because they have more than one possible owner. It is also required for companies that have employees, act as fiduciaries for other people's money, or are in a certain industry such as alcohol, tobacco, or firearm industries. It is NOT required for sole proprietorship.

What are some examples of some fraudulent activities that a non-solo payroll department many prevent?

Terminated employees could continue to be paid via the payroll system or the funds could be subverted to someone else perpetrating the fraud. Sales commission plans, employee bonus plans, incentive programs are all subject to employees' and management's manipulation. The payroll checks distributed to employees could be stolen individually or en masse prior to their distribution.

Mandatory Deductions: Federal Income Tax

The amount of Federal income tax withheld depends on the employee's taxable income, marital status, and the number of exemptions that the employee lists on Form W-4. Note that it is the employee's responsibility to compute the number of exemptions correctly. Also, unlike other taxes, the employer does not contribute any matching amount for the federal income tax deduction.