Payroll Audit Checklist

Save

Organizations have incentives to monitor their payroll operations. In addition to fraud that drains resources, there are regulations governing taxes, employment, and data privacy that carry legal and financial consequences for noncompliance. Payroll audits confirm payroll accuracy, identify weak links in payroll processing, and ensure that compensation procedures and policies minimize risk. They also serve as a cross-check that previous audit findings were addressed. Whether conducted by an internal team or an outside auditing firm, payroll audit checklists cover key categories.

Verify Employment Records

  • Payroll centers around each employee's master file and the organization's record of a worker's assigned pay rate. Factors that are taken into account include employee number, benefit eligibility, employment status, and year-to-date earnings. Payroll audits compare file contents against issued pay, track changes and change authorizations, and review security measures such as access. A master file audit also confirms that only active, eligible employees are being paid, and reviews the timeliness of employee separation transactions.

Examine Payroll Liabilities

  • A payroll auditor wants to ensure that gross pay and any paycheck deductions have been correctly calculated. Tax withholding, retirement contributions, benefit premiums, and garnishments must be verified. Auditors review salary advances and loans to employees, noting the existence of written policy, adequate documentation, and administrative checks and balances. Bonuses and commissions get cross-checked against sales and incentive programs and applicable policies and procedures. Deferred compensation, such as paid holidays taken in a different pay period, also merit an auditor's attention.

Monitor Timekeeping Transactions

  • Hours worked must be documented, either on paper or electronically, in order for employees to be paid properly. Paid time off may be linked to hours on the job, requiring an audit of sick pay, personal leave, paid military leave, and vacation days. The timekeeping aspect of a payroll audit will reveal overpayments, underpayments, and discrepancies in sign-off procedures that have been put in place to reduce dishonest time reporting.

Verify Employment Expenses

  • Padded expense reports that inflate payroll cost and possibly violate Internal Revenue Service regulations can be uncovered in a payroll audit. In addition to ensuring that reimbursement requests adhere to company policy and approval procedure, payroll auditors verify receipts and calculate the expense totals for accuracy. Reviewing the accounts or cost centers that correspond to payments for travel and other employment expenses ensures that financial statements present accurate values for cost of goods sold, labor and inventory.

References

  • Photo Credit LDProd/iStock/Getty Images
Promoted By Zergnet

Comments

Resources

You May Also Like

  • Payroll Policy & Procedures

    A payroll policy describes the payroll process as it relates to administration of salaries, timekeeping, payroll schedules and payment methods. Documented procedures...

  • Procedures for a Payroll Audit

    Sometimes an employer might be required to undergo a payroll audit. Sometimes the audit is specific or it might be a complete...

  • How to Calculate Payroll Expenses

    Payroll expenses are a function of employee wages and payroll taxes. There are five main payroll taxes that must be reported and...

  • What Is a Ghost Audit?

    Large organizations and those with multiple locations face a form of financial fraud called ghost employees. To detect them, and ultimately to...

  • Checklist for a Revenue Audit

    Keeping the proper paperwork to help your business run smoothly may help you avoid a revenue audit at the end of the...

  • Internal Audit Checklist for HIPAA

    In 1996, the U.S. Congress passed the Health Insurance Portability and Accountability Act -- HIPAA -- to regulate how health care institutions...

  • Checklist for PeopleSoft Payroll

    Oracle reported revenues greater than $35 billion for the year ended May 31, 2011. Among the software developer's revenue makers is its...

  • Audit Assertions & Procedures

    Audit assertions and procedures allow an auditor to carry out testing activities on a business organization's internal controls, policies or guidelines and...

  • Checklist for an Accounting Audit

    Many auditors use more than a checklist to review an organization's accounting activities, according to "The CPA Journal." With the amount of...

  • Audit Preparation Checklist

    Audits are an internal or external review of a company’s operations for financial information. Companies use operational audits to ensure they remain...

  • Payroll Processing Checklist

    Payroll processing is a multidimensional task that an employer must perform. The employer must comply with the United States Department of Labor's...

  • Documentation Audit Checklist

    Documentation is a part of daily life in the world of personal, financial and general data collection, and consequently, it is only...

  • Internal Control Procedures in Payroll

    Internal controls for payroll exist to ensure payroll is properly disbursed to the appropriate employees, that it's accurately recorded and that the...

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!