This chapter lays a foundation for the entire proposal. It deals with the introduction of the study assessment of internal control over payroll, a case study of Tanesco. It covers the background of the study, statement of the problem, objectives of the study and research questions.
1.1 BACK GROUND TO THE PROBLEM
According to C. Rollin (1965) wages or salaries are generally amount to one of the largest expenses incurred by a business. Accounting for these items involves much more than recording liabilities and cash payment to employees. Payroll account also includes; amount withheld from employees wages; payroll taxes paid by the employees; and, employees benefits paid by the employer. As all individuals affected by the payroll transactions are within the organization, a work breakdown of the system of control will easily attract attempts to manipulations and fraud an efficient and appropriate internal control for the payroll functions, are necessary to prevent such payroll frauds and overpaid employee’s compensations, continuation of former employees on the payroll after their termination, payment made to fictitious employees, overstatement of payroll deductions and duplications of cheques being issued. On the other hand, the potential of internal control over payroll has not been realized in developing countries like Tanzania even though, they know how a technology developed by the west has been transferred to the developing countries, internal control over payroll is a problem that is acute to most business and non business organization. Many organizations had faced with the problems of continuation of former employees on the payroll after termination, payment to fictitious employees, overstatement of payroll deductions and duplication of cheques being issued due to poor internal control over the payroll. Although internal control over payroll is very important, many organizations have got no proper ways to detect and prevent frauds in payroll. The key purpose of this inspiring study, of internal control over payroll is to boost the researchers’ knowledge and understanding the issues-involved on payroll system in the organization. In any organization, success in preventing and detecting the frauds and errors is depending up on effectiveness of internal control over payroll.
1.2 STATEMENT OF THE PROBLEM
According to Jack L. Smith(1987:187) Payroll involved with outflow of funds and large process of determining the required sum of money to be paid to each employee and some deductions from the employee’s salary or wage. It involves the list of paid employees, and their salaries or wages. In this study the researchers’ intention is to show the link between the internal control system of financial management in its ability to prevent errors and frauds and hence results into problems associated with internal control system over payroll. The study also devoted to find the realizable relationship between effective internal control over payroll, the detections and prevention of errors and frauds in payroll system for purpose of giving recommendations, suggestions and solution to some of the problems associated with payroll system.
1.3 THE OBJECTIVE OF THE STUDY
1.3.1 General objective
The general objective of the study is to assess whether there is effective and strong internal control in the organization that can detect and prevent payroll frauds and errors and does it apply the system of segregation of duties.
1.3.2 Specific objectives
The following are specific objectives of the study;
(i)To access the effectiveness of internal control over payroll.
(ii)To find out whether or not there has been any problems in the payroll system.
(iii)To find out how the organization has been solving the problem if any
1.4 RESEARCH QUESTIONS
The researcher will base on the internal control system to get the answer for the following questions; (i) What are the...