Payroll Audit Program_1
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Transcript of Payroll Audit Program_1
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7/29/2019 Payroll Audit Program_1
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
GENERAL
The Payroll Department is responsible for processing 48 payrolls annually for over 4100
monthly, bi-weekly, and substitute employees. The Department also plays a critical role in the
administration and recordkeeping of various benefits offered by the District. Administering the
payroll requires a high level of knowledge of many State and Federal laws and regulations, as
well as a thorough understanding of the District’s policies with respect to employment and
benefit issues.
AUDIT OBJECTIVES
1. Comprehensive policies and procedures addressing payroll activities have been developed
and documented;
2. The District is in compliance with established policies and regulatory requirements;
3. Access to payroll records is limited to authorized personnel;
4. Wages and taxes are authorized and accurately recorded;
5. Payrolls are properly prepared, approved, and recorded; and,
6. Recorded balances are regularly substantiated and reviewed.
AUDIT PROCEDURES
1) General
a) Obtain:
i) Policies and Procedures
ii) Prior Audit Reports
iii) External Auditor Management Reports
iv) Regulatory Examination Reports
v) Job Descriptions and Organizational Chart
vi) Related Information of Laws and Regulations
b) Review policies and procedures to determine adequacy.
c) Review prior reports to determine whether corrective action has been implemented for
noted deficiencies.
2) Lead Schedule
a) Prepare a lead schedule of all accounts affected and indicate the balance as of the audit
date. Prior to completion of the audit, ensure that all accounts have been verified by
reconciliation, analytical review, or testing.
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
3) Payroll Processing
a) Document the flow of documents through payroll processing.
b) Payroll procedures should be reviewed for appropriate controls to ensure the
accuracy of salary payments. Verify the following:
i) Signatures of employees preparing salary payment calculations and the officer
reviewing the same should be evidenced on the appropriate register.
ii) Ensure that file copies of Employee Statements of Earnings and Payroll
Registers are maintained in the custody of the Payroll Department personnel.
iii) A supervisor should review all computer/manual payroll registers to ensure that
the information has been accurately entered and captured, and should sign the
register and accounting entries to evidence review.
c)
Select a sample of individuals from the last payroll register and perform thefollowing:
i) Trace the pay rate and all deductions to properly authorized forms in the
employee’s personnel file.
ii) Agree departmental classifications in payroll.
iii) registers with personnel records.
iv) Trace any overtime pay to properly approved forms. If time cards are used in
the calculation of gross pay, determine that they have been properly calculated,
approved, and filed.
v) Recalculate all amounts, including gross pay, deductions, stipends, and net pay.
Trace elective deductions to signed authorization forms and reference taxes to
appropriate sources.
vi)
Trace to appropriate disbursement to employee.vii) Trace total payroll amounts to posting in the proper general ledger accounts.
d) Document controls for protection and distribution of payroll checks. Conclude on
adequacy.
4) Utilized Forms
a) Obtain copies of all forms used by the department.
b) Evaluate for adequacy and effectiveness.
5) Generated Reports
a) Obtain copies or examples of all reports generated for the personnel and payrolldepartments and determine their use and distribution. Include system reports, PC
reports, and manual reports. Ensure that the information presented in these reports is
tested or analyzed at some point in the audit program.
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
6) Time Accounting
a) Inaccurate time reporting could result in excessive salary expense or violation of wage and hour laws. Select a sample of recently completed time cards/time sheets
and verify the following:
i) The time worked is properly recorded.
ii) Reasons for absences, early departures, tardies, and overtime are indicated and
approved.
iii) Overtime is properly calculated and reported.
iv) The time card/time sheet is signed by the employee and approved by the
supervisor.
b) Document the operation of the Kronos timekeeping system. Test as necessary to
ensure that the system is functioning as intended and that time is accurately
recorded.
7) Absence Reporting
a) Improperly reported absences could result in incorrect recordkeeping and additional
expense. Interview management and employees and review absence reports to
evaluate the following:
i) Daily records of attendance are maintained.
ii) Vacations are scheduled to ensure that efficient operations are maintained.
iii) Attendance and tardiness guidelines are communicated to all employees.
iv) All absences are reported in a timely and accurate manner.
b) Review attendance records and check that appropriate disciplinary actions areevidenced for those employees showing abuse of attendance or tardiness guidelines.
c) Evaluate the District’s liability for unpaid vacation days. Consider issuing
confirmations to a sample of employees to verify accuracy of vacation balances and
proper reporting of leave.
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
8) Expense Control
a) Inadequate control over payrolls could result in fictitious individuals receiving payroll funds. Select a payroll register for testing and compare it with input records
submitted for payroll processing. Determine the reasons for any differences in the
information and follow up any exceptions with management.
b) Scan salary expense amounts for the prior 12 months. Follow up on any unusual
fluctuations noted. Or, compare prior period salary expenses to current period
expenses and current budget (by department or campus and in total) and investigate
significant variances.
c) If deemed necessary, validate the payroll register by selecting a sample of employees
and physically verifying their existence.
d)
For payroll benefit expenditures and accruals, perform the following:
i) Compare accruals for compensated absences such as vacation and sick leave to
prior period actual and current budget, and compare the relation of amounts to
gross pay with the same ratio for the prior period.
ii) Identify bonuses, stipends, PSAs, or other unusual compensation, and inspect
evidence of approval.
iii) Evaluate reasonableness of accrual for payroll expenditures at the end of the
period.
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
9) Tax Sheltered Annuities
a) Examine documentation of external audits performed for IRS compliance andevaluate the adequacy of procedures and accuracy of results.
b) Determine the number of District employees participating is tax sheltered annuity
programs, the monthly contribution for each employee, and the number and names
of vendors providing these annuities.
c) Select a sample of employees participating in 403(b) plans. The sample should
include at least one employee for each vendor identified, one new employee, and
employees with large elective deferrals relative to their compensation.
d) Review documentation of the payroll deductions for the employees to determine
that:
i) The deduction is supported by a written agreement which is signed by the
employee and an authorized District administrator, specifies a dollar amount or
a percentage of compensation, and is dated before the first day of the pay period
in which the salary reduction commences.
ii) There is no more than one salary reduction agreement executed each calendar
year.
iii) The amount of the deduction agrees with the amount authorized by the
employee.
iv) Documentation supporting the calculation of contribution limitations indicates
that the calculations are correct and the deduction does not exceed the limitation
on elective deferrals.
e)
Review the annuity contracts and documentation of custodial accounts to verifycompliance with IRS regulations, in particular that the tax-sheltered annuity is not
transferable or forfeitable, and that there is no conflict with the distribution
requirements.
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
10) Reconciliations
a) Obtain the reconciliations of all payroll-related deposit accounts and payroll-relatedliability accounts. Trace balances to the general ledger, bank statements, and
supporting documentation. Test transactions as necessary. Verify the accuracy of
the reconciliation and the propriety of any outstanding items.
b) Evaluate reconciliations to ensure that business standards are implemented,
including:
i) Reconciliation is prepared within thirty days of the end of the period.
ii) The account title and account numbers are documented.
iii) The general ledger date is documented.
iv) The reconciliation balance ties to the general ledger ending balance.
v) Signature of the preparer and the reviewer as well as the respective dates are
documented.vi) Descriptions of outstanding items are adequate and explicit.
vii) Origination dates of outstanding items are clearly documented.
viii) Reconciling items are cleared within sixty days.
ix) Backup documentation, including general ledger pages, reports, etc. are
attached.
x) The reconciliation is clear and able to be reasonably understood by individuals
not involved in its preparation.
c) Examine in detail the contents of the most recent bank statement. Ensure that all
checks carry the appropriate signatures and verify the propriety of the endorsement.
Compare dates on the deposit slips to the date the deposits were recorded by the
bank to ensure that deposits are being promptly processed.
11) Regulatory Reports
a) Failure to file required reports could result in fines or other disciplinary action.
Determine that all required reports (both State and Federal) and tax reports such as
Form 941 are prepared accurately, approved by a supervisor, and submitted on a
timely basis by examining the most recently filed copies. Verify the accuracy by
tracing values to the corresponding payroll report.
12) Budget
a) Obtain the Payroll Department’s budget reports as of the most recent month-end.
Review for significant overdrafts, serious fluctuations from initially budgeted
figures, and unusual entries.
b) As necessary, test a sample of transactions for accuracy, reasonableness, and
adequacy of supporting documentation.
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ROUND ROCK INDEPENDENT SCHOOL DISTRICT
PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM
W/P
REF
AUDITOR
INITIALS
7 10/24/03
13) Custody of Payroll Records
a) Ensure that access to payroll records is limited to authorized employees only.Determine whether files are consistently safeguarded during and after business
hours.
b) Determine that blank check stock is adequately safeguarded.