Department of Internal Audit and Compliance

Finance and Accounting - Payroll

Effectiveness and efficiency of operations 

A. Payroll disbursements and critical records are safeguarded.

  1. Do adequate controls over payroll checks exist (for example, have controls been implemented to account for spoiled checks, is access to checks restricted, is written approval to process checks required, are pre-numbered checks used, is access to check-signing equipment restricted, are checks and direct deposit advices secured until distributed to employees, are signed receipts obtained from individuals who receive checks for distribution, or are unclaimed wages returned to the treasury function)?
  2. Do adequate controls over payroll cash exist (for example, are controls built to implement written procedures regarding access to cash or direct deposit of funds via bank transfer required or encouraged strongly)?
  3. Do adequate controls over critical records exist (for example, have written procedures been implemented regarding access, are safes and locked cabinets or off-site storage used, have access controls been installed over computerized records, or access to master files restricted)?

B. Payroll is distributed in a cost-effective manner.

  1. Have relevant performance measures been devised to monitor the efficiency of payroll distribution (for example, payroll department cost per employee, number of employees on a monthly payroll cycle, percentage of employees paid by direct deposit)?

C. A quality payroll service is provided for employees.

  1. Have relevant performance measures been devised to monitor the quality of the payroll service (for example, number of queries raised by employees or time to respond to queries)?

Reliability of financial reporting 

A. Payroll costs are accurately calculated from authorized sources and recorded on a timely basis.

  1. Are batch totals used before processing is completed and the totals compared to post input/update reports for systems that input time recording into a temporary file before sub-ledger updates?
  2. Have computer validation routines been devised to verify the accuracy of time record data (for example, are employee number, hours worked, and department code verified)?
  3. Is it required that the payroll supervisor review payroll withholdings to ensure the propriety of amounts, compliance with applicable governmental requirements, timely remittance to the appropriate entity, and timely reconciliation to the general ledger accounts?

B. Recorded payroll balances are substantiated.

  1. Is a one-to-one check performed at period end to ensure payroll expenses through the reporting period are properly recorded and any accruals, if appropriate, are accurate?

C. Payroll disbursements are accurately processed and recorded on a timely basis.

  1. Have computer routines been devised that automatically generate payroll checks or electronic funds deposits based on the amounts recorded in the payroll register, calculate total value of disbursements, and post accounting entries to the related ledgers?
  2. Are batch totals used before processing is completed and the totals compared to post input/update reports for systems that input payroll payments into a temporary file?
  3. Is the payroll manager required to review the payroll register after processing for reasonableness prior to distribution and research and correct any unusual results as necessary?

D. Payroll changes, costs, and disbursements are reliably processed and reported.

  1. Are employee names and other applicable information (such as address or bank account) for EFT or actual check processing pulled by the system from the Employee Master File? 

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Last Updated: 1/3/23