When one considers that about 85 percent of school districts’ operating expenditures are for payroll and benefits, internal controls in this area are absolutely essential. The Texas public school system employed over 670,000 staff in school year 2014-15 and paid over $37 billion in payroll and benefits. The average person is not aware of the complexities involved in ensuring accurate and timely payroll processing, in accordance with applicable state and federal law, rules and regulations, in addition to specific procedures related to payroll and timekeeping systems installed in individual school districts and open-enrollment charter schools. Accurate processing of employees’ salaries and wages involves complex computations that encompass many factors, including: various salary schedules, various hourly rates, annualized and non-annualized pay requested by nonexempt staff, extra payments for select non-annualized jobs, various stipends, various types of paid and unpaid leave, deductions for various types of employee benefits, different pay rates for exempt and nonexempt staff assigned to different functions during their work day, and substitute pay for instructional and non-instructional staff. Additionally, the District must comply with the Fair Labor Standards Act (FLSA) relating to compensatory time and overtime pay. There are no exemptions for smaller-enrollment school districts. This being said, it’s difficult to overstate the importance of internal controls over payroll and benefits.
At the very least, access to payroll and accounting systems needs to be limited to only those staff in the district having legitimate need for access. If employees are provided online access to their timesheets, then staff should only have access to their own timesheets, and supervisors should only have access to timesheets for those employees under their supervision. Additionally, human resources personnel should not have access to the payroll system; and payroll personnel should not have access to the HR system. Additional layers of access controls should be applied to specific personnel in the human resources office and the payroll office, according to their respective roles and responsibilities.
At a high level, recommended segregation of duties, include:
- Human Resources
- Processing employee status, compensation, and benefit records
- Processing employee status change documents
- Preparing and updating employee master files
- Payroll
- Payroll calculations
- Preparation of payroll disbursement records
- Preparation of payroll disbursements
There should be consideration of assigning certain functions to appropriate personnel that work outside of the district’s human resources, payroll and business offices. These additional controls include:
- Authorization of additions and deletions of employees in the payroll system
- Authorization of changes to rate of pay and benefits
- Review and approval of timesheets
- Review and approval of payroll reconciliations prior to distribution of each payroll
- Distribution of check stubs to employees (if on-line access is not provided) or paychecks to employees without direct deposit
- Opening the bank statement(s) for the payroll account(s)
Is your school district so small that there are only one or two personnel responsible for all of the human resource, payroll and business-related functions? The additional controls listed above are practical for all districts regardless of enrollment size.