Pay Grade: Effective Payroll Management

Transcription

1 8:30 10:10 May 9, 2018 Room th Annual Conference May 6-9, 2018 St. Louis, Missouri Moderator/Speakers: Joni Butler Payroll Analyst, Allegheny County, PA Tracy Arner, MEd, CPA, CPFO Program Manager, Carl Vinson Institute of Government - University Of Georgia Michelle McCrimmon Deputy Chief Financial Officer, City of Orlando, FL Pay Grade: Effective Payroll Management #GFOA2018

2 Welcome Pay Grade: Effective Payroll Management Moderator Joni Butler Payroll Analyst Allegheny County

3 Effective Payroll Management Payroll: A system for paying employees Often the largest part of an annual operating budget, yet not always well regarded Mixture of accounting and human resources

4 Effective: Successful in accomplishing a task Management: Responsibility for control of a task

5 How effective? How well managed?

6 Topics Internal Control for Payroll COSO and Green Book Components ERP Tools for Payroll Management Solutions to existing problems

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8 Internal Control for Payroll Tracy Arner, MEd, CPA 8

9 Payroll Nightmare! Internal Control for Payroll 9

10 Learning Objectives Define the payroll process Recall components and principles of internal control Explain how creating and documenting a system of internal control can assist management in meeting payroll objectives Internal Control for Payroll Learning Objectives 10 Webinar Introductions 10

11 Payroll Process Defined Internal Control for Payroll Payroll Process Defined 11

12 What is Payroll? The principle purpose of any payroll department is to pay the organization s employees Payroll is the process of paying an organization s employees Internal Control for Payroll What is Payroll? 12 Webinar Introductions 12

13 Employee Earnings Determined by agreement between employer and employee Salary schedule Position title Steps/years of experience Employees pay examples: Annual salary/prorated over pay periods Hourly rates paid based on hours worked Pay periods vary monthly, semimonthly, biweekly or weekly FLSA 150% regular rate for 40+ hours with certain exemptions Internal Control for Payroll Employee Earnings 13 Webinar Introductions 13

14 Employee Earnings Time sheet Basis of non-exempt payroll Contents of time sheet Employee name Pay period Dates worked Number of hours worked Leave Accounting distribution Approval Employee Employer Internal Control for Payroll Employee Earnings 14 Webinar Introductions 14

15 Payroll Journal Special Journal Sometimes call Payroll Register Common contents: Name of employee Expenditure distribution Gross payroll Adjustments to gross payroll Adjusted gross payroll Net payroll Internal Control for Payroll Payroll Journal 15 Webinar Introductions 15

16 Payroll Deductions Social security tax Medicare tax Federal, state, local income taxes Deferred compensation Pension contribution Benefit deductions Other deductions Internal Control for Payroll Payroll Deductions 16 Webinar Introductions 16

17 Recording the Payroll Internal Control for Payroll Recording the Payroll 17

18 Recording Employer s - Share of Benefits Internal Control for Payroll Recording Employer Benefits 18

19 Payroll and Internal Control Internal Control for Payroll Payroll and Internal Control 19

20 What Are Internal Controls Internal Control Integrated Framework COSO Process effected by an entity's board of directors, management, and other personnel designed to provide reasonable assurance regarding the objectives relating to operations, reporting, and compliance. Standards for Internal Control in the Federal Government GREEN BOOK Process effected by an entity s oversight body, management, and other personnel that provides reasonable assurance that the objectives will be achieved. -Operations -Reporting - Compliance Internal Control for Payroll What Are Internal Controls 20

21 How Is Internal Control Organized? 17 Principles Green Book p10 Internal Control for Payroll 21

22 Control Environment Internal Control for Payroll 22

23 Control Environment Foundation for internal control system providing discipline and structure which affects the overall quality of internal control 5 Principles Oversight Body Demonstrates Commitment to Integrity and Ethical Values Communicate published code of ethics to employees Oversight Body Oversees Internal Control System Auditors report directly to oversight body Management Establishes Organizational Structure, Delegates Authority, Assigns Responsibility Provide job descriptions with proper segregation of duties for responsibility and authority Management is Committed to Recruit, Develop and Retain Competent Individuals Hire those with right knowledge and skills to accomplish tasks Management Evaluates Performance and Holds Individuals Accountable for Their Internal Control Responsibilities Annual employee performance evaluation Internal Control for Payroll Control Environment 23

24 Risk Assessment Internal Control for Payroll 24

25 Risk Assessment Process for identifying and assessing risks that could affect achievement of entity s objectives 4 Principles Define objectives clearly to enable identification of risks and define risk tolerances Management should identify, analyze and respond to risks related to achieving the defined objectives. Management should consider the potential for fraud when identifying, analyzing and responding to risks. Management should identify, analyze, and respond to significant changes that could impact the system of internal control. Internal Control for Payroll Risk Assessment 25

26 Risk Assessment Payroll Objectives Objective 1 Authorization, Transactions are preapproved, authorized by management and have occurred Objective 2 Safeguarding Assets, Payroll and employee records are controlled and restricted to authorized personnel Objective 3 Accurate, Reliable and Timely Information, Transactions are accurate, agree with source documents, recorded in timely manner and have proper cut-off Objective 4 Segregation of Duties, Employee assignments are designed so that no one individual can control recording and processing transactions Internal Control for Payroll Objectives for Payroll 26

27 Risk Assessment Objective No. 1: Authorization Risks: Unauthorized employee is entered into system or remains in system after termination Payment for hours not worked Payroll is processed without proper authorization Internal Control for Payroll Risk Assessment 27 Webinar Introductions 27

28 Risk Assessment Objective No. 2: Safeguarding Assets Risks: Employee data is breached Unauthorized pay rate is entered Leave taken not properly entered Internal Control for Payroll Risk Assessment 28 Webinar Introductions 28

29 Risk Assessment Objective No. 3: Accurate, reliable and timely information Risks: Payroll cannot be generated due to lack of required approvals Salary/pay rate are not properly updated Hours/pay period inaccurately entered or not updated Deduction information entered improperly or updates not posted in a timely manner Payroll is generated but is not posted to the general ledger Account distribution codes are not updated Electronic payment file is not transmitted to the financial institution in a timely manner Internal Control for Payroll Risk Assessment 29 Webinar Introductions 29

30 Risk Assessment Objective No. 4: Proper Segregation of Duties Risks Due to vacancies, one individual is responsible for processing and recording the payroll offering an opportunity for errors or irregularities Personnel may enter a fictitious employee or pay a previously terminated employee and deposit funds to their own bank account Payroll errors go undetected due to lack of appropriate review Internal Control for Payroll Risk Assessment 30 Webinar Introductions 30

31 Control Activities Internal Control for Payroll 31

32 Control Activities Actions management puts into place to reduce identified risk 3 Principles Management should design control activities to achieve objectives and respond to risks Management should design entity s information system and related control activities to achieve objectives and respond to risks Management should implement control activities through policies. Internal Control for Payroll Control Activities 32

33 Control Activities Objective 1 Authorization Risk - Unauthorized employee paid Control Activity - Written process for hiring Budget approval Authority to advertise Appropriate applicant information Established selection process Formal job offering (Letter) Internal Control for Payroll Control Activities 33 Webinar Introductions 33

34 Control Activities Objective 1 - Authorization Risks Payment for hours not worked, Payroll processed without approval Control Activities Required to ensure that only valid transactions are entered into payroll system Time sheets approved by employee and supervisor Supervisor s approval = authorization to pay and certifies time recorded is actual time worked. Payroll should be authorized by supervisor Verify that all supporting documentation is present prior to approving payroll Could be manual or electronic approval Internal Control for Payroll Control Activities 34 Webinar Introductions 34

35 Control Activities Objective 2 Safeguarding Assets Risks Data breach, unauthorized pay rate, leave not entered Control Activities Access to employee confidential data should be restricted to those required to make changes Gross salaries control total, reasonableness test Leave sheets approved by supervisor compared to leave entered into payroll Internal Control for Payroll Control Activities 35 Webinar Introductions 35

36 Control Activities Objective 3 Accurate, reliable, and timely information Risks Lack of approval, pay rates and hours not updated, deduction information incorrect or not posted, no general ledger posting, account codes not updated, electronic payment file not transmitted Control Activities Approval rights given to more than one supervisor Pay rates are updated and verified by a separate employee Hours entered into payroll system agree to timesheets Deduction information is verified against source documents Employee assigned responsibility to update general ledger and verified by supervisor Written process for updating account distribution codes Deadlines established for transmitting electronic payment file with backup plan Internal Control for Payroll Control Activities 36 Webinar Introductions 36

37 Control Activities Objective 4 Segregation of Duties Risks Fictitious employee, payroll errors Control Activities Do not allow one employee to be responsible for the following Authorization, New hires, pay rates, and check signing Custody of Assets, Access to bank accounts or mailing checks Record Keeping, Preparing source documents, maintaining ledgers, preparing reports Reconciliations, Preparing payroll liability account reconciliations and bank reconciliations Internal Control for Payroll Control Activities 37 Webinar Introductions 37

38 Information and Communication Internal Control for Payroll 38

39 Information and Communication Information is data that are combined or summarized based on needed requirements Communication is sharing relevant and quality information internally and externally 3 Principles Management should use quality information to achieve objectives Management should internally communicate the necessary quality information to achieve the entity s objectives Management should externally communicate the necessary quality information to achieve the entity s objectives Internal Control for Payroll Information and Communication 39

40 Information and Communication Examples of quality information Enrollment periods for benefits Pay periods and dates (cutoff) Holidays Furlough days Personnel policies and procedures Salary information (pay scales) Benefits payable due dates Tax withholding due dates Internal Control for Payroll Information/Communication 40 Webinar Introductions 40

41 Information and Communication Internal communication Recurring payroll department meetings Memos Policies and procedure manual s Shared drive for storing content Training Internal Control for Payroll Information and Communication 41 Webinar Introductions 41

42 Information and Communication External Communication Meetings Website s Policies Announcements Training Internal Control for Payroll Information and Communication 42 Webinar Introductions 42

43 Monitoring Activities Internal Control for Payroll Monitoring Activities 43

44 Monitoring Activities Methods to determine internal control system continues to operate as intended 2 Principles Management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. Management should remediate internal control deficiencies on a timely basis. Internal Control for Payroll Monitoring and Payroll 44

45 Monitoring Activities Internal Audit - Review all changes to employee information/forms for accurate and timely posting Agreed upon procedures outside CPA perform Supervisory Review Use system documentation to ensure policies and procedures put into place are still functioning as intended Corrective Action Plan management assigns responsibility for correction action for noted deficiencies and follows up on action taken Internal Control for Payroll Monitoring and P/R 45 Webinar Introductions 45

46 Resources Internal Control Committee of Sponsoring Organizations (COSO) Standards for Internal Control in the Federal Government (Green Book) GFOA Internal Control for Payroll Resources 46 Webinar Introductions 46

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50 Pay Grade: Effective Payroll Management Michelle McCrimmon City of Orlando Deputy Chief Financial Officer GFOA Conference May 9, 2018

51 Agenda City of Orlando Background and Structure City of Orlando s ERP Journey Issues Before and After Implementation Q& A

52 City of Orlando Background and Structure

53 City of Orlando Happiest place on earth Population of 280,000 within area of 110 square miles (MSA has population of 2.4M) Industries other than theme parks: Sports, Arts, Medical City, Computer Simulation 70% of general fund budget are salaries and benefits

54 Reporting Structure Deputy CFO CFO Controller Centralized Payroll (4) Police and Fire Payroll Staff

55 Payroll Biweekly payroll 4,500 Monthly pension payroll 2, earnings codes 320 deduction codes 17 integrations for payroll

56 City of Orlando s ERP Journey

57 ERP Status before Workday HCM / Payroll system 27 years old Green screen Current release but only updated for tax compliance Duplicative data entry was required to keep the payroll and HCM sides in sync Not integrated with budget All projections required data downloads to Excel or uploads to JDE (City s financial software)

58 ERP Status before Workday HCM / Payroll system Manual processes and multiple one-off systems to compensate for the lack of core functionality. Lotus Notes, Sharepoint,.Net, etc. Multiple customizations to compensate for system limitations Complicated upgrades Challenge to find IT resources

59 ERP Status before Workday Financials system Financial controls were not optimal Ineffective reporting Not user friendly No mobile capabilities Difficult to find IT resources Not supported by service provider

60 What is Workday? SaaS Software as a Service (i.e. cloud) Multi-tenancy single software application serves multiple customers. Can configure application but cannot customize the code. One integrated system for HR, Payroll, and Finance Updates pushed to all tenants twice/year

61 ERP Status after Workday Workday HCM, Payroll and Financials First municipality to implement (customer #396) Contract awarded November 2012 Project kickoff February 2013 Go Live (15 months)- February 2014 to May 2014 WD22 at go live and now on WD30

62 Implementation Process - Payroll Design / Security Identify integrations external and internal Identify and configure pay components 1,100!! Parallel testing (2 rounds) Data validation (W-2) Go live

63 Implementation Process - Payroll

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65 Issues Before and After Implementation

66 Issue: Managers do not approve timesheets on time Before Workday After Workday Issue solved? All employees tracked time in Kronos. Managers or their designee approve in Kronos. Exempt: In Workday certify time but do not track hours. Non-Exempt: In Kronos Managers or their designee approve time. Partially Exempt approvals do not stop payroll from processing. At go live accelerated the deadline for employees. Roadmap: Bring in groups of non-exempts into Workday.

67 Issue: Setting up eligibility rules on pay components is manual Before Workday After Workday Issue solved? Pay components were attached to employees individual profiles when hired, modified when transferred, and removed when terminated. This required manual processing and maintenance. Pay components are set up with eligibility rules configured based on positions. When employees are hired, transferred, or terminated, the pay components are automatically linked to the employee. Yes. It is important to set up the configuration rules correctly. Use of the sandbox environment to test additions or changes before moving them to Production.

68 Issue: Payroll adjustments are manually entered Before Workday After Workday Issue solved? Manual adjustments to payroll had to be entered one-by-one by payroll staff. Manual adjustments could only be entered on Monday and Tuesday of the processing week. Maintain files separately. Adjustments to payroll can be uploaded from a spreadsheet. Comments can be made within system and supporting documentation can be attached in Workday. Adjustments can be done at any time. Yes The process has been streamlined and is easier to review accuracy of changes and impact of changes.

69 Issue: Payroll results cannot be verified before completing Before Workday After Workday Issue solved? If manual adjustments were made, the changes and calculations could not be verified until payroll was completed. If results weren t as expected, the paycheck would have to be canceled and reentered. After manual adjustments are made, an individual s payroll can be recalculated or the entire payroll can be recalculated prior to completing. Yes the process has been streamlined and reviews can be made more efficiently and effectively.

70 Issue: Retroactive adjustments are time consuming Before Workday After Workday Issue solved? Retroactive adjustments had to be manually calculated and changes were manually keyed in. Example: Impact of union agreements could result in 500+ manual recalculations. Example: Changes in benefits due to job System calculates retroactive changes based on effective date. All reviewed by Payroll staff for reasonableness. Mostly yes.

71 Issue: Terminations are not recorded timely Before Workday After Workday Issue solved? Terminations were handled via paper form that required multiple signatures. Delays and lack of notice resulted in numerous emergency checks for last checks. HR or Payroll handled the process within the system. Terminations are initiated in Workday by the Manager and can be effective dated. All approvals route in Workday and Payroll is the last approver in the process to ensure last check is handled accurately. Yes still need to remind Managers they do not need to wait to process in Workday. Over-hires can be processed once a termination is entered.

72 Issue: Employees have to complete a large number of forms Before Workday After Workday Issue solved? Sample paper forms needed: Direct deposit W-4 enrollment or changes Benefit changes 457 enrollment or changes Emergency contact information Legal name changes Address changes Employees complete these tasks in Workday. Supporting documentation is loaded and reviewed. Yes. Instructions on how to do this are posted in intranet or in help text in Workday.

73 Issue: Employees are paid for items they aren t eligible for Before Workday After Workday Issue solved? All adjustments were entered manually which was subject to more data entry errors. Payroll Manager couldn t efficiently review changes until payroll was completed. Supporting documentation had to be retained in separate files. Each pay component have eligibility rules designed so that if an employee is not in a job eligible for such components, they won t process. Yes. Although the old process was effective, with Workday it is automated based on when an employee is transferred / promoted / demoted. Any adjustments would be handled via retro payroll.

74 Issue: Employees still want checks Before Workday After Workday Issue solved? The City processed about 300 pay checks. Payslips were accessed through a custom program that ran after payroll was processed. Employees could elect to have the deposit payslip printed and payroll staff had to distribute each payday. To date, the City processes about 100 pay checks per period. Payslips are no longer printed and instead are viewed in Workday. More collaboration with HR to have employees complete direct deposit forms during onboarding. Mostly yes. Before Workday only 1 bank could be selected. Now up to 3 banks can be selected with either $ or % to be sent.

75 Issue: Tracking absences are challenging Before Workday After Workday Issue solved? Time off requests were handled outside of the system. All time off taken was recorded in Kronos for all employees. Kronos maintains time off so that time taken cannot exceed what is available. Exempt: Request time off in Workday. Direct Manager, or designee approves. Managers have mobile access to Workday. Time off requests are reflected in timesheet when Managers approve. Non-Exempt: No change. Exempt: All time off is entered but Managers still need diligence when reviewing timesheets that time off was properly recorded. Non-Exempt: No change Roadmap: Bring in groups of non-exempts into Workday.

76 Issue: Reporting capabilities are limited Before Workday After Workday Issue solved? Custom reports were difficult to create and had to have IT build. Reports could only be printed or downloaded to pdf. Numerous built in reports or can also navigate in system and download information from various screens. Reports can be downloaded into excel or pdf and are formatted nicely. Some built in analytics for payroll to compare payroll results to prior Yes.

77 Q&A

78 112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Speaker Contact Information: Joni Butler Tracy Arner, MEd, CPA, CPFO Michelle McCrimmon Questions: Speakers will take questions and comments. This session is being recorded, please utilize the microphone in the aisle to ask all questions. Provide Feedback: Please take a few minutes to provide your feedback at Discuss/Comment: Join the discussion at #GFOA2018 Contact GFOA: To contact GFOA about session topics please research@gfoa.org #GFOA2018