The payroll manager has oversight over the processing and production of the payroll. The function of payroll processing must be segregated from the function of paycheck distribution. Therefore, having the payroll manager distribute paychecks would be a violation of the principle of segregation of duties.
This would be an acceptable method of distributing paychecks, as long as controls are in place to minimize the potential for theft or fraudulent distribution of paychecks, such as payments made to fictitiouis or terminated employees. The person who distributes the checks should not also have authority to authorize payroll checks. However, this is not the method from among those given that provides for the best internal control for the organization.
Direct deposit to each employee's personal bank account provides the best internal control over distribution of paychecks. It lessens the risk of damaged, lost or stolen payroll checks because no checks are distributed. The only thing distributed is a statement of earnings. If earnings are deposited electronically into employees' accounts, it is important that deposit records be reconciled to a list of active employees at every pay date so that persons whose employment has been terminated do not continue receiving payroll deposits. Cancellation of direct deposit processing should be part of employment termination procedures, and a terminated employee should receive his or her final paycheck in the form of a physical check instead of a direct deposit, as evidence of the direct deposit cancellation.
Representatives of the Human Resources department authorize transactions that add employees to the payroll, change pay and effect other key transactions. Therefore, human resource employees must not have access to paycheck distribution, nor to timekeeping or payroll functions. The Human Resource department must be organizationally separate from the payroll office and payroll functions. So having a representative of Human Resources distribute paychecks would be a violation of the principal of segregation of duties.
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