Incorporating Internal Financial Controls Over Financial Reporting Empirically- Series 5 –HR-Staff & Worker Process

 (Listed Companies Call)

 As I already stated in my introductory part of this topic, any process will be parted into static and strategic meaning thereby one which is in as it is form and the other requires professional skepticism. Above that, static facts w.r.t. terminologies are also tuned here. Let us sail beyond statutory sections sight u/s 134, 143,177 of Companies Act, 2013 by carving into crux of HR worker & staff process.

Incorporating Internal Financial Controls Over Financial Reporting Empirically- Series 5 –HR-Staff & Worker Process

Draft design depicted as: –

  • Radical round
  • Strata static sphere
  • Holding hand till exit end
  • Wrap up­­­­
  • Radical Round

Radical Round

What if we spent on employees, and they leave? What if we don’t and they stay? –A situation at every stage of HR process.! HR process begins with the budget and planning stalked by mode of recruitment drive and dives deep till termination task. It covers walkthrough of an employee-employer life cycle of trainings, compensation, performance and resignation.

  • Strata-Static Sphere

Consists of following: –

1. SOP

2. Compliance corner

3. Workers Wing

4. Third party picture

5. Alumni arch

1. SOP

SOP tells that HR module is in built in the main system or is it segregated with other software. This creates the base risk matrix of starting with system strata. Apart from that, approvals and SOD/DOA aspects are apt. HR SOP takes step till too many policies like leave, travel, canteen food, group medical, probation, notice period, rehire, transfer, re-location, job-rotation, flexible working hours, performance appraisal, promotion, variable pay and so on topped up with reimbursement rack. Going through each policies eliminates risk of one to many.

Static share of going through SOP of any process sets the stage to start IFC

2. Compliance corner

As we are taking about listed co, we need to be well versed with inter linking’s/subsidiaries which may fall under various brackets like angel tax, SEZ, Nidhi company and other applicable. Insight to its incorporation structure only will give intelligibility.

Compliance corner counts applicable framework and complying with the same. It’s just a 3-way match of: – listing out applicable framework, with accuracy of calculation and within specified timeframe. Seems just a task but even a day’s delay or non-compliance may lead to interest, penalties, notice and appearance in books of accounts! It also knocks the door of other controls of IFC like finance and accounts, statutory, budget and all areas effected by transaction.

Common care of generally applicable acts like Payment of Gratuity, Payment of Bonus, Income Tax, FEMA (in case of foreign employee payment), PF, ESI, Companies Act, etc. be crated cautiously.

3. Workers Wing  

Need to know “New Wage Code “. Latest amendments in workers wing be integrated before labor union! Blue collar jobs blend itself with bundles of buckets like safety, security, creche facilities, insurance, apprentice aspirants, skilled, semi- skilled and unskilled standards, overtime, efficiency rate, incentives, awareness trainings TDS, attendance and all statutory add-ons. Prohibition of engaging child labour as per Ministry of Labour and Employment also aligns towards compliance.

Labour turnover rate ought to be higher than staff, hence sensible stick be parked to measure “At par /industrial aspect “. This works backward to determine reasons for high/low turnover which may be embedded to decide its boundary within tolerance level or not.

Surprise verification or muster audit is must to ensure that no payment is made to ghost worker. Apart from that additional level to ensure payment to present workers is the benefit book of Govt schemes availed by the company. E.g Atmanirbhar Bharat Rojgar Yojana. Counts under the concern schemes Vs actual payment from HR records!

Transfer of unclaimed PF paves way to understand lack of awareness among people and management measure to mitigate the same. All type of insurance inculcated with integrity to provide benefit to the workers should be evaluated. Its aligned opinion of employers and employees have learnt that in union there is strength. Mix of management theories by Peter F Drucker and Frederick Winslow Taylor stands still as on date.

Worker’s wing be waved wisely.

4. Third Party picture

There are two broad areas where third party pictures play pivotal role. These areas are: –

  • Expert opinion on any matters related to valuation of FBP or any HR component of Balance Sheet.
  • Agency agreement to provide 3rd party services related to any class of worker/employee like security staffs, training tasks, agency hire, etc.

Static Standard on Auditing be applied like using work done by others and using work of auditor’s expert. Going through their reports and to what extent it is considered in books of accounts creates impact on risk and control matrix.

E.g. Gratuity valuation report is obtained, while in books of accounts, amount reflected is different than what is valued. That change may be due to change in assumption or change in method as stated in valuation terms. Is it justified with proper approvals and at par with applicable standards? These answers and analysis determine the outcome of testing

Third party picture be portrayed tactfully to tackle timeous testing.

  • Holding Hand till exit end

Basically, hire to retire can be particularized into: –

1. Desk drive till decimal depth

2. Mission -Vision Match

3. Probation phase

4. Performance pace

5. Settlement stage with exit edge 

1. Desk drive till decimal depth

This phase talks about walk in drive till finalization of figures/CTC provided other hurdles are done away with. Miniscule aspect related to these desks are: –

  • Budget allocation from recruitment till on-boarding stage. Third party contracts/reports be evaluated in case of outsourcing services availed.
  • Approvals on decimal /cost to company as set by org and at par with peer market. At par aspect will play role in turnover rate.
  • Related party or reference mode people be evaluated at arm length price. A must include sample in reviewing controls.

 2. Mission – Vision Match

Purpose or job- description, basically mission of company vs vision of candidate is a must match. This can be evaluated with the help of turnover ratio.

3. Probation phase

These period paves way for permanency part with a pinch of imaginary and glittery views. Imaginary view filled with mandatory trainings and placing of an individual in org hierarchy. Glittery view gained by interaction at all levels of management to give gist of open-door policy.

Turnover rate of this stage be evaluated beyond figures as its generally non-finance factor that fixes future forward. Financial aspect is already factored at inception! It may be deviation from job -description, changes in policies by those charge with governance, automation /manual level of task to be performed, etc. This gives operational insights to the knowledge of client business.

4. Performance pace

 Field work or reality check clicks here. Minting model of any org molds the minuscule of performance pack. Few of them are: –

  • Documentation /Data discipline
  • System sync

It is to be evaluated by elaborating IT controls. Inception always by SOD/DOA, access to create-edit-delete HR master, software linking if it’s segregated from main module. Suspense check by entering ghost employee in the system. Strength of IT controls in HR from attendance till payout level serves substantial strength to this process.

  • Rewards, recognition and retention routes

Going beyond minimum statutory requirement or giving golden handcuffs gives garish view of HR policies. Performance pay-flexi components linked to profits or growth of the company are ought to be evaluated.

Continuous trainings/learning and celebrations care also carve concern corner for employee.

  • Compliance corner of Ind AS-1 Presentation of Financial Statement, Ind AS-19 Employee benefits & Ind As-24 Related Party Disclosures along with applicable framework to be followed.

Understanding of break up of CTC components will connect dots to other affected processes in the organization.

  • Form 16 components catch

There can not be a standard method to cover all components of Form 16, its all-random racks to be run.


1) LTA Vs Attendance -Sunday /Holiday logs /pen’s down day log in the system.

2)Staff loans and advances review, ageing Vs nomination and remuneration committee call. Deviations if any be directed towards detection and decisions thereof.

3)Fringe benefits and KMP perks to be parked preciously and precisely.

4) Suggestion box scrutiny.

5) Ratio analysis of turnover and gender gap.

4. Settlement stage & exit edge

Please accept the papers. That glow of notice period and reverse counting of days!! 🙂

First thing to begin with is to go through exit policy. To understand this stage process flow needs to be bridge from resignation till exit interview with settlement slip (F&F)

Verification with compliance- all PF, ESI, GST recovery , gratuity , ESOPs ,FEMA,  perk valuation and fringe benefits be ensured with conformity of applicable framework.


1)Foreign employee served for 7 years and at the time of settlement on Indian company payroll, gratuity is still not payable! Go through the contract terms which renews every year. Covering samples which reflect the gamut of population is a deliberate task.

2) Methodical samples of resignation must also include cases where trail of resignation is recorded. Meaning thereby papers are taken back. This is one of that specific sample which may deviate from approved policies, or it will give flip side of whether policies are followed or not.

3)Ageing aspect inclusion. Time taken to process payment at any level. If ageing exceeds acceptable time frame, that sample be backed by sufficient cause for delay.

4) Exit interview, feel of exit edge be documented to ensure fixation of those loopholes, if any on part of employer.

Exit edge ends with alumni arc.

  • Wrap Up

HR staff and worker process completes the continuous life cycle of employee. Drafting of RACM or testing the controls generally requires aforesaid basic tests. As per the knowledge of client business, RACMs need to be rebuilt.

Every person who has opted for home loan surely have come across employer verification via company e-mail or HR confirmation. At times, even physical discussions with banking managers at office premises not specifically at canteen would have taken place. See the power of observation– employee entrance from company premises, swiping of card, employee ID, a look at screen if feasible and recent one is company Microsoft teams on the go!!

It all signifies new ways of IT checks and other security aspects to ensure that payment goes to beneficiary only i.e., thought behind Direct benefit transfer. In the similar lines, let it be any industry, identifying risk and testing it in a way that its under ambit of tolerance gives true and fair view of outcome determined.

Author Bio

Qualification: CA in Job / Business
Company: Protiviti India Member Pvt Ltd
Location: Mumbai, Maharashtra, India
Member Since: 30 Jul 2019 | Total Posts: 13
I am working in industry since 4 years. I keep on doing some certifications mostly in the field of investments or stock markets, but keeping it intact with oneself is of no use, unless we share knowledge, so I started writing … Your feedback will bring immense value to me, hence keep sharing. Y View Full Profile

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March 2024