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Home : Essentials of Payroll : Problems with Timekeeping and Payroll
Problems with Timekeeping and PayrollProblems with Timekeeping and PayrollDespite your best efforts to create an accurate timekeeping system, there are several types of errors that will arise from time to time and that require special controls to avoid. One is the charging of time to an incorrect job. This is an easy error to make, typically caused by incorrect data entry by a direct labor person, who, for example, transposes numbers or leaves out a digit. To keep this problem from arising, the timekeeping system can be made an interactive one that accesses a database of currently open jobs to see if an entered job number matches anything currently in use. If not, the entry is rejected at once, forcing the employee to reenter the information. This control can be made even more precise by altering the database to associate only particular employees with each job, so that only certain employees are allowed to charge time to specific jobs; however, this greater degree of precision requires additional data entry by the job scheduling staff, who must enter the employee numbers into the database for all people who are scheduled to work on a job. If there are many jobs running through a facility at one time, this extra data entry will not be worth the improvement in data accuracy. If the existing data entry system involves only a simple rekeying of data from a paper-based time card submitted by employees, the data must be interpreted and then entered by the data entry staff. But this generally results in the least accurate data of all, for now there are two people entering information (the employee and the data entry person), which creates two opportunities to make a mistake. In short, the best way to avoid charging time to the wrong job is to have an interactive data entry system. Another problem is that a vastly inaccurate amount of hours will sometimes be charged to a job, usually through the incorrect recording of numbers. For example, an eight-hour shift might be entered incorrectly as 88 hours. To avoid such obvious mistakes, the timekeeping system can be altered to automatically reject any hours that clearly exceed normal boundaries, such as the number of hours in a shift or day. A more sophisticated approach is to have the timekeeping system automatically accumulate the number of hours already charged during the current shift by an employee, which yields an increasingly small number of hours that can still be worked through the remainder of the shift; any excess can either be rejected or require an override by a supervisor (indicating the presence of overtime being worked). This approach is not possible, however, if employees record their time on paper, since the information is entered after the fact, and any correction to an incorrect number will be a guess by the data entry person and hence may not be accurate. Another possible problem is that an employee might charge an incorrect employee code to a job, resulting in the correct number of hours being charged to the job but at the labor rate for the employee whose number was used, rather than the rate of the person actually doing the work. To avoid this error, the timekeeping system should be set up to automatically access a list of valid employee numbers to at least ensure that any employee code entered corresponds to a currently employed person. Though this is a weak control point, it at least ensures that hours charged to a job will be multiplied by the hourly labor rate of someone, rather than by zero. A much stronger control is to require employees to use a bar-coded or magnetically encoded employee number that they carry with them on a card, which ensures that they enter the same employee code every time. A weaker control is to post a list of bar-coded or magnetically encoded employee numbers next to each data entry station—it is weaker because an employee can still scan someone else's code into the terminal. If a paper-based system is used, an employee normally writes his or her employee number at the top of a time report, which is then entered by a data entry person into the computer at a later date. The problem with this approach is that the data entry person may enter the employee number incorrectly, which will charge all of the data on the entire time report to the wrong employee number. Again, an interactive timekeeping system is crucial for the correct entry of information. Yet another problem is that the cost per hour that is used by the timekeeping system may not be the same one used in the payroll system. This problem arises when there is no direct interface between the timekeeping and payroll systems, meaning that costs per hour are only occasionally (and manually) transferred from the payroll system to the timekeeping system. This results in costs per hour on timekeeping reports that are generally too low (on the grounds that employees generally receive pay increases, rather than decreases, so that any lags in data entry will result in costs per hour that are too low). One way to fix this problem is to create an automated interface between the payroll and timekeeping systems, so that all pay changes are immediately reflected in any timekeeping reports that track labor costs. It is important that this interface be fully automated, rather than one that requires operator intervention, otherwise there is still a strong chance that the cost data in the timekeeping system will not be updated, due to operator inattention. An alternative approach is to keep all labor costs strictly confined within the payroll system and to import timekeeping data into it, rather than exporting payroll data to the timekeeping system. There are two reasons for taking this approach: First, exporting payroll data anywhere else in a company makes it easier for unauthorized employees to see confidential payroll information; second, the payroll system cannot generate many meaningful reports without data from the timekeeping system, whereas the timekeeping system can generate a number of reports that do not need labor cost data (see the earlier section on timekeeping reports). Thus, it may be better to leave the payroll data where it is and instead work on an automated interface that imports timekeeping data into the payroll system. Not only is it entirely possible that any of the problems described in this section will occur, but it is also possible that they will go undetected for a substantial period of time. To avoid this happening, the internal auditing department should be asked to conduct a periodic review of the controls surrounding the timekeeping and payroll systems, as well as a test of transactions to see if any problems can be spotted. The resulting audit report can be used to further tighten the controls around these data collection systems. 610
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