ACCT10003 Lecture Notes - Lecture 7: Remittance, Internal Control

Venture Volunteers for troubles teens is a not-for-profit entity that provides counselling services to troubles teens and adolescents. While the majority of its funding comes from government, the group also participates in a variety of fundraising activities. To manage the fundraising activities and administer the various programs, there is an executive director, two accounting staff, and several youth counsellors. All staff are salaried and the payroll is processed biweekly. Employees are not paid overtime, but rather they use "flex" time to compensate for overtime. As a result, it is unusual for the payroll to change from pay period to pay period. All of the staff are on direct deposit, so no payroll cheques are issued. The responsibility for the payroll is split between the two accounting staff, Maddie and Ricardo. Maddie is responsible for preparing and posting the payroll while Ricardo is responsible for processing infrequent items such as staff terminations and administering the benefits program. The actual payroll processing is outsourced to a payroll service provider, Paystab Inc. Paystab processes the direct debit payments to employees abd the remittance of all with-holding taxes.

Maddie maintains a spreadsheet listing employees with the approved pay rates. This is maintained in Excel and is password protected. The spreadsheet is sent to Paystab Inc., and it processes the payroll. Only Maddie and Ricardo have access to the spreadsheet and only Ricardo can add or remove employees. Paystab provides Maddie with the payroll register that details the individual pay amounts and totals. Based on this report, Maddie prepares the journal entry for posting to the general ledger. This is reviewed by Ricardo for accuracy, and for unusual amounts and significant fluctuations. Every quarter he prints a copy of the payroll master file and reviews it to ensure only actual employees are listed. He initials a copy of this master file to document this review.

When new staff are hired, they are provided with a new employee package. This package includes a signed offer letter, all tax and medical forms, a confidentiality package, an ethics statement, and a job description. These forms are maintained in an employee personnel file and stored in locked cabinets in the accounting area. Ricardo will update the employee master file when the employee begins work.

Maddie is notified of any staff terminations by the employee's manager. This is done via e-mail. No change can be made to the employee payroll file unless it is provided in writing and the organization deems e-mails adequate. There is a staff "leaving" checklist that needs to be completed and one of the requirements is to remove the employee from the payroll. Once completed, this is filed in the employee's personnel file.

All salary changes are requested by the departmental managers and sent to the executive director for approval. Once approved, an official letter is signed by the executive director and maintained in the employee's personnel file. Ricardo is provided with a copy so he can update the employee's salary in the master file.

Required:

Identify eight strengths of the payroll process at Venture Volunteers. For each strength identify what the test of that control could be.

Note: For the exercises and problems in this chapter, use the following tax rates:

FICA-Employer and employee 8% if the first $120,000 of earnings per employee per calender year.

State unemployment: 4% of the first $8,000 of earnings per employee per calender year.

Federal unemployment: 1% of the first $8,000 of earnings per employee per calender year.

Federal income tax witholding: 10% of each employee's gross earnings unless otherwise stated.

E3-1 Computing payroll earnings

R. Herbert of Crestview Manufacturing Co. is paid at the rate of $20 an hour for an eight-hour day, with time and a half for overtime and double time for Sundays and holidays. Regular employment is on the baiss of 40 hours a week, five days a week. At the end of a week, the labor time record shows the following:

Because jobs are randomly scheduled for the overtime period, any overtime oremium is charged to Factory Overhead.

a. Compute Herbert's total earnings for the week.

b. Present the journal entry to distribute Herbert's total earnigns.

(Note: These single journal entries here and in E3-2, E3-3, E3-4, E3-8 and E3-9 are for the purpose of illustrating the principle involved. Normally, the entries would be made for the total factory payroll plus the adminstrative sales and payroll.)

E3-9 Recording the payroll and payroll taxes

Using the earnings data developed in e3-1, and assuming that this was the 50th week of employment for Herbert and the prevoius earnigns to date were $119,800, prepare the journal entries for the following:

a. The week's payroll

b. payment of the payroll

c. The employer's payroll taxes

You work for an organization in Nova Scotia and your manager,Jessica Boyer, has asked you to prepare a memo detailing theremittance responsibilities and legal consequences ofnon-compliance with statutory remittance requirements.

studing material :

Employers are responsible for registering and maintaining apayroll program account with the Canada Revenue Agency. Theemployer will remit the statutory deductions withheld from theemployees’ remuneration for Canada Pension Plan (CPP)contributions, Employment Insurance (EI) premiums, and federal andnon-Québec provincial income taxes, along with the employerportions of CPP and EI to this account.
In Trust

Statutory deductions are deemed to be held in trust for theReceiver General for Canada. This means the amounts withheld fromemployees, along with the employer’s portion, must be kept separatefrom the operating funds of the business and cannot be part of anestate in liquidation, assignment, receivership, or bankruptcy.Employers who make their own government remittances, as opposed tohaving them remitted by a service provider, must separate all CPPcontributions, EI premiums and income tax withholdings, along withany employer portion, from the organization’s regular bank account.All statutory deductions and contributions must be held in aseparate payroll account until the remittance is made to theReceiver General.

Remitter Type

An organization’s remittance frequency depends on its averagemonthly withholding amount for the second preceding calendar year.For example, the withholding amount for 2017 will depend on theemployer’s average monthly withholding amount made in 2015.Employers may apply to the Canada Revenue Agency to have theiraverage monthly withholding amount for the current or previous yearused instead of the second preceding year. This would beadvantageous if the employer’s payroll for the previous year waslower than the payroll for the second preceding year.

Remittance Schedule

Once an employer has been advised by the CRA what type ofremitter they are, a schedule, based on that type, is used todetermine when the remittances are due to the CRA. The payment forthe first three types of remitters – quarterly, regular, andaccelerated threshold 1 – is due by a specified date based on thepayroll cheque/deposit date. The remittance for acceleratedthreshold 2 remitters is due three business days after the end ofthe weekly period, established by the CRA, in which the payrollcheque/deposit date falls. In all cases, the payroll cheque/depositdate is the date when the money is paid to the employee or directlydeposited in their bank account. The period end date, the payrollprocessing date and the date the pay statement is handed to theemployee are all irrelevant in determining the remittance date.

Penalties and Interest Charges

The CRA may assess a penalty of up to 10% of the required amountof CPP contributions, EI premiums and income taxes due for lateremittances (20% on the second and later occurrences). An employerwho withholds the statutory deductions but does not remit them, orfails to deduct the required deductions will be subject to a 10%penalty for the first occurrence on the amount that should havebeen deducted and remitted (20% on the second and lateroccurrences). The penalties for late remittances are asfollows:
 3% if payment is late 3 business days or less
 5% if payment is late 4 or 5 business days
 7% if payment is late 6 or 7 business days
 10% if payment is 8 or more business days late Normally thepenalty is only applied to the part of the amount that the employerfails to remit that is more than $500.00, however the CRA may applythe penalty to the total amount if the failure to remit, or thelate remittance, was made knowingly or under circumstances of grossnegligence. Again, special attention is required at the end of theyear if producing any manual cheques after the final pay period forthe year has been processed