Payroll Auditing Techniques

Lisa Poole, CPP
VP, HR Operations, Payroll
SunTrust Bank

Agenda

Self Audit

Sampling

Review self audit and payroll cycle programs

Items to consider auditing

Periodic practices

Risk mitigation

Conducting a Self Audit

Auditing one complete cycle

Functions of the department

Documents reviewed

Risks associated with control weakness

Internal controls needed

Considerations

  • What audit procedures would you recommend obtaining evidence that payroll data are accurately totaled and free from defects?
  • What “items” would you sample?
  • What factors should be considered in setting the size of your sample?

Purpose of Audit Sampling

Sampling is performed because it is more efficient than testing 100% of a population.

In tax audits, if the taxpayer and the Department can agree on a representative sample, it can save both parties time and money.

Sampling Risk

Risk is made up of the risk of inaccurate records and the risk of misapplication of the law

Sampling risk is the chance that the sample selected is not representative of the population

  • Risk that there are errors (inherent risk)
  • Risk that procedures will not find errors (audit risk)

When Not to Sample

Small population (test 100% of the transactions or dollars in this case)

Large dollar amounts – verify that amounts reported/paid match source documents

Defining a Test Sample

Define the objectives of the test

Sample result should be objective and defensible

Defining a Population

Decide what period will be covered by the test

Define the sampling unit

Consider the completeness of the population

Consider how the error rate will be measured

Selection of the Sample

Random number sampling

Systematic sampling

Other sampling

Determine the sample size

Perform the sample

Evaluate the Sample Results

  • Interpret results
  • Reach an overall conclusion about the population

Compliance Tests

Compliance tests are tests which determine whether controls are being complied with

Yes – controls are being followed

No – deficiencies in controls

Procedural Questions

What audit procedures would you recommend to obtain evidence that the pay rates are appropriately assigned and used in figuring gross pay?

Review of Self Audit Program

Review of Payroll Audit Program

Sample listing of audits

Items to Consider Auditing

SSN – SSNVS/BSO

I-9 Forms

Garnishments

Tax deposits

Benefit plan items

Unclaimed wages

Employee data changes

Tax rates

Employee tax set up – reciprocity rules

Reconciliations

Interface data transfers

Checks to inactive employees

Periodic Practices

Data scrubbing – check for data exceptions such as:

  • Exempt W-4 and state withholding forms for compliance
  • Cost center changes
  • Pay and deduction code usage
  • Retroactive increases and decreases

Source Documents

Time records

Payroll register

General ledger balances

Wage and tax registers

W-2 forms

Payroll check clearing account

Risk Mitigation

Segregation of duties

Timely account reconciliations

Manual check approvals

Review negative liability account balances

Job rotation

Security of data – storage, passwords, confidentiality agreement

Standardized checklists – new dept set up, W-2 corrections, approval authority

Questions? Contact Me!

Lisa Poole, CPP

404-813-7847