The payroll process is arguably one of the most critical responsibilities of any business owner or manager. There is often room for human error in data entry. For example, the payroll department might forget to input a pay increase for an employee or leave a terminated employee on the system.
The most effective way to avoid potential payroll problems is to conduct a payroll audit.
What Does a Payroll Audit Process Look Like?
A payroll audit is a way to examine your payroll service to ensure your payroll data is accurate. It examines your active employees, employee pay rates, salaries and wages, payroll tax, as well as PAYG withholding.
Conducting a payroll audit is a task you should do on an annual basis. It's an internal process that you carry out to catch, repair, and prevent errors. It's a good step to take in ensuring compliance. It can also help you avoid an external payroll audit down the line. But in the event that you are externally audited, you will be well-prepared. Following the audit, you should examine the report and put changes into effect.
Internal Payroll Process
Employee database
Review all of the employees you have listed in your payroll account. If you have more listed in your account than you do working for you, there's an issue. It could be a case of a terminated employee lingering on your system. Alternatively, there could be ghost employees on your system. A ghost employee is a fake employee that someone adds to your payroll with the purpose of committing payroll fraud.
Check your numbers
Payroll is all about numbers, so you can't complete an audit without analysing your numbers. Part of the payroll audit procedures is to check pay rate, pay period, hours worked, and tax withholding. Check pay rate by employee to ensure it's accurate.
Verify time
For paid time off – you need to verify whether it is tracked correctly and if it was deducted from their remaining leave.
Reconcile the discrepancies
Where you find discrepancies be sure to examine the records carefully to uncover the problem. Compare your records to the general ledger. The general ledger's payroll expenses should align with the findings of your audit. You will also need to reconcile the records with bank statements.
Confirm report accuracy
You will also need to verify tax accuracy. Are you withholding the correct amount from each of your employees?
Internal Payroll Audit Checklist
If you are ready to start your payroll audit, you can use this payroll audit checklist in Australia.
