Why Payroll Audit Is A Must-Have?

In the previous blog, we learned about payroll audits. Now let us learn about why payroll audit is a must-have. In this day and age where most things around us are evolving constantly, payroll is no exception. It is also changing to keep pace with the new needs of employees and employers. That is to say, when it comes to payroll, companies deal with a variety of scenarios and challenges. These issues are frequently caused by a lack of payroll-related internal controls or insufficient audits of payroll inputs and outputs. We will highlight the key points that must be checked to maintain payroll hygiene. This will make the payroll process efficient, lowering the irregularities that will be reflected during payroll auditing.

The general idea of payroll audits is to reduce errors, maintain compliance, stay updated, and improve the payroll processes. In addition, this leads to good payroll practices.

Checklist For Audit

Let us continue on the topic of why payroll audit is a must-have. A regular internal payroll audit is strongly recommended, that is to say, for every pay period. It will help identify errors in payroll inputs (for example, human errors in inputs), false or fake inputs, etc. This will allow the organisation to report and correct it within the pay period, avoiding any losses or employee dissatisfaction. Some important data points for the audit are as below:

• Input Data Changes

Any change in data that can directly or indirectly impact payroll output should be audited. For example, input data such as compensation changes, one-time payroll values, employment information changes, etc. In addition, if the auditor finds any errors in the input data, they should look for further details. That is to say, the Who-When-How-Why of things. This helps you arrive at a solution that can prevent the same issue from happening again in future payroll runs.

• User Access Audit

The auditor needs to check for changes that occurred in terms of user access to employment information or payroll records. This is to determine if any unauthorised user access has been provided.

• Payroll Output Audit

Any inconsistencies in the payroll processing without proper justification by the payroll maker/checker must be identified, analysed, and resolved.

Payroll Controls

As we continue on our topic of why payroll audit is a must-have, let us learn about some effective controls that can be applied. That is to say, establishing effective controls can result in minimum or no errors while processing payroll. Some of the controls are as mentioned below:

• Separation Of Tasks

The payroll system should not be user-dependent, but process-dependent. The payroll process is a complex one, with multiple stages. That is to say, starting from getting the employee data, payroll inputs, and time inputs for payroll processing, and payroll accounting. In addition, there should be a clear identification of a user’s role and the tasks that are to be performed by them. Dividing payroll tasks among different users will ensure that no one person has complete control of the payroll from start to finish, which may cause an error or fraud.

• Single Source Of Truth

If the employee data is integrated through a third-party system for payroll, then it will be considered the source of truth for employee data. No changes should happen at the receiving source to ensure synchronised information in both systems, which in turn drives the payroll output. For example, if employee data is integrated from one payroll system to another, the integrated data should not be changed in the receiving system. In addition, any changes required in employee data should be made in the source system, and then it should be integrated with the receiving system. This will ensure data is in sync in both the systems, ensuring it results in proper payroll output without errors.

• Maker And Checker For All Important Transactions

All important transactions should have a maker and a checker so that any errors in the transactions can be identified at the stage of the input itself. In addition, for important transactions that have a direct or indirect impact on payroll output, there should be, at least, one level of approval. That is to say, a maker to make the entry and a checker to verify it. This will ensure that if the maker makes a manual error or a fake entry, it can be identified by the checker during individual transactions, which happen much before the payroll processing.

Now that you know about payroll auditing and why payroll audit is a must-have, we hope it will help you with your business in the future.