Payroll audits should be conducted regularly to ensure that your payroll records are accurate and properly maintained, and to identify problems before they become issues. Generally, payroll audits are internal, meaning you or someone in your business conducts them. Performing internal audits can help you catch errors and prevent possible external audits in the future.
Steps to follow for an effective payroll audit:
1. Verify Active Employees
Some employees commit payroll fraud by adding fake employees to payroll. Or, you may have forgotten to remove a terminated employee from your payroll. Make sure that the list of employees on your payroll matches your employment records. Remove any employees who no longer work for you.
To be proactive also set up e-mail notifications in your application to warn relevant users when employees statuses are changed (i.e. new, discharged etc). Your checks can also be performed against these e-mails.
2. Verify Bank Information (Active Employees)
Over and above fraud potentially happening during step 1, it’s also imperative to check the bank details loaded against employees. Verify that bank details are correct or perform a check by printing a bank audit report comparing bank details for staff against previous months. Ensure that you have approved bank changes for staff where applicable.
To be proactive also set up e-mail notifications in your application to warn relevant users when bank details are changed. Your checks can also be performed against these e-mails.
3. Check Employee Pay Rates
Ensure that the Rate of Pay’s captured on your system is correct for each employee. Unfortunately, all of us are human and finger errors come into play and that extra “0” could make a big difference on your payroll bill. Also, keep in mind that there will be package changes with promotional increases etc.
To be proactive also set up e-mail notifications in your application to warn relevant users when changes on the Rate of Pay’s are made. Your checks can also be performed against these e-mails.
4. Review Hours Paid
In this process, you will need to check all fluctuating payroll attributes i.e. wage hours, overtime hours, leave pay etc. Review everything a manager may have overlooked that could influence the payroll budget. If you have a Time & Attendance clocking system, verify hours processed in the payroll against the system to eliminate possible errors.
5. Variance Check’s (Comparisons)
It is also a great idea to do a variance check against your previous pay periods. If your payroll system can provide these types of reports this process should be a quick win.
6. Compare payroll to the general ledger
Ensure that the totals in your payroll matchup with the general ledger records. Review any unusual amounts.
7. Bank Reconciliation
Compare and review your payroll bank statement against payroll records. Be sure the totals align, and that all EFT’s loaded on the bank are balancing to your payroll EFT reports. If there is an error in this step perhaps review all above-mentioned steps.
8. SARS Submissions
PAYE, UIF, SDL contributions need to be paid monthly and reconciled & submitted Bi-Annually. Ensure that accurate records are submitted to SARS and values balances back to your payroll totals for the relevant periods. If you make changes after your declarations, ensure that SARS is updated accordingly.
In Summary, conducting an effective payroll audit procedure keeps you in control of your organisation’s financial management. When you manage payroll effectively, you do not have to waste time reacting to problems you could have avoided.
Another key step in maintaining HR workload, while increasing your company's cost-effectiveness, is to consider outsourcing. A professional company such as LabourNet can provide much-needed help with Human Resources needs and questions.
For more information on the above topic, please contact the LabourNet Helpdesk at
0861 LABNET (0861 522638).
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