April 05, 2009

Operations Management – Lesson 3


Monthly Payroll Process

Introduction

From a "performance objective" point of employees would like to receive their paycheck on time reflecting the correct amounts, so without mistakes and their data treated with Confidentiality.

From a "Business Control" point of view we need to ensure that we have the appropriate check and balances in place whilst implementing a solid Separation of Duties (SOD) process mitigates potential conflict of interest.

Sarbaness Oxley controlpoints require that we indenpendently test the Payroll process from an "End-2-End" process point of view to ensure that we have executed a process as per predefined parameters.


Process Design

Process Mapping the Payroll process which ilustrates Who does What and When provides a comprehensive overview of the proces and potential conflicts of interest or capacity/workload issues can also be made visible.

[1] Separation of Duties

In this context the main objective of the Process Design should be aimed at executing a process which meets the 7 step criteria of SOD;


Nr

Step

Characteristics

1

Appropriate

employees need to be paid

2

Valid

employees need to be eligible

3

Reasonable

employees should be paid fairly (market rate, peer, benchmark etc..).

4

Funded

Manager should have an approved budget

5

Accurately recorded

costs should be correctly recorded/charged to the respective cost center

6

Supportable

all required approvals and documentations need to be in place

7

Timely recorded

all the approved/processed dates need to be accurately tracked


source: http://financial.ucsc.edu/Pages/Management_SeparationofDuties.aspx


[1] Business Control (sarbanes oxley act) - Sox testing

As soon as we have completed the Payroll Process, in order to demonstrate that the 7steps of SOD have been executed correctly, the Process Design should include BC element which results needs to be part of the Company's Business Control performance measures.

Defects of Payroll Execution

Any defects discovered during the Sox testing need to be reported and action taken to correct findings and to implement process improvements on how to mitigate this from re-occurring. This can be tested by subsequent testing to see if remediation efforts have solved the control gaps.

Payroll Processflow chart





Visibility

HR Administrator and HR Manager have the highest visibility as they interact directly and regularly with the employees, whilst the Chief Accountant, CFO and Treasury have medium to low visibility.


Process Task and Capacity Configuration

With a 9 stage approach the Payroll process is long and thin with narrow task for everyone (SOD) and they need to be aligned perfectly as delay in one stage severely effects the subsequent stage. From a logistic point of view the employee provides or is the starting point of the process and also ends the process as recipient of salary.


Cycle Time - this is very short as the process takes about 7 working days, however any errors made which need to be corrected and re-approved can jepordise the timely payment of salaries


End



References

Slack et al, 2006, "Operations and Process Management", Prentice Hall

Wally, 2009, Warwick MBA Study note on "Operations Management"


Websites

http://financial.ucsc.edu/Pages/Management_SeparationofDuties.aspx


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