Payroll Auditing Techniques
Lisa Poole, CPP
VP, HR Operations, Payroll
SunTrust Bank
Agenda
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Self Audit
Sampling
Review self audit and payroll cycle programs
Items to consider auditing
Periodic practices
Risk mitigation
Conducting a Self Audit
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Auditing one complete cycle
Functions of the department
Documents reviewed
Risks associated with control weakness
Internal controls needed
Considerations
o What audit procedures would you recommend obtaining evidence that payroll
data are accurately totaled and free from defects?
o What “items” would you sample?
o 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
o Risk that there are errors (inherent risk)
o 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
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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
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Random number sampling
Systematic sampling
Other sampling
Determine the sample size
Perform the sample
Evaluate the Sample Results
o Interpret results
o 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
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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:
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Exempt W-4 and state withholding forms for compliance
Cost center changes
Pay and deduction code usage
Retroactive increases and decreases
Source Documents
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Time records
Payroll register
General ledger balances
Wage and tax registers
W-2 forms
Payroll check clearing account
Risk Mitigation
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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
poolarita@gmail.com
404-813-7847