Question

Explain how duties are segregated in payroll. Specifically, who or which departments conduct the authorization, timekeeping, recording, and custody functions?

Answer 1

Authorizing, timekeeping, record keeping, and custody of the paychecks should all be separated. Namely, the human resources department, which is responsible for authorizing new employee hiring and maintaining personnel files, should be separate from the payroll time reporting and record keeping functions, performed primarily by the payroll, cash disbursements, and general ledger departments.  In addition, employees in each of these departments should not have check-signing authority and should not have access to the signed checks or cash account. The person who distributes paychecks to employees, often referred to as a paymaster, should not have responsibility for any of the related payroll accounting functions and should not have custody of cash. The paymaster should also be independent of the departmental supervision responsibilities, so that it can be determined that paychecks are being distributed to active employees. Finally, information systems operations and programming related to the payroll processing should be separate from those responsible for custody of payroll cash and record keeping for these processes.