As a global organisation, you should conduct a payroll audit regularly, whether you are striving to ensure your payroll processes are accurate and compliant or your business is preparing for an inspection from a regulatory body.
When properly administered, a payroll audit is an effective way to ensure that proficient payroll processing meets your legal and financial responsibilities and employee expectations.
Payroll auditing ensures that your global business processes payroll correctly and follows all legislative, regulatory, labour law, and contractual requirements while detecting any possible payroll process risks.
Therefore, multinational organisations are strongly encouraged to keep track of their payroll operations.
In addition to resource-draining fraud, regulations governing taxes, employment, and data privacy have legal and financial ramifications for noncompliance.
Payroll audits confirm payroll accuracy, identify weak points in payroll processing, and ensure that compensation procedures and policies are risk-averse.
They also check to address previous audit findings. Whether in-house or third-party, payroll audits are ideal for every global organisation to ensure optimal payroll process performance.
Payroll audits, in particular, significantly reduce both financial and regulatory risks. But, to be honest, no system is perfect. There are numerous opportunities for error, and errors will occur.
Nonetheless, payroll audits significantly reduce unintentional errors and strengthen financial controls over your organisation. Overall, payroll audits should be a routine part of your payroll process.
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An 8-Step Checklist for Payroll Auditing
Payroll audits ensure that a company’s payroll process and calculations are correct, complete, and legal. Therefore, relying on employees to spot mistakes in their pay calculations is unwise.
That said, we’ll show you how you can get handle payroll auditing and balance the books in just eight simple steps
Authenticate wages and additional benefits
Once you’ve affirmed that each individual on your payroll is an actual employee, ensure they get the correct salary/wage rate and supplemental pay.
The process of verifying payment rates will vary depending on the payment type; for example, if you pay an employee on a salary, the payroll audit should compare the amount paid to the wage specified in the employment contract.
Or, if you pay an employee hourly, the payroll audit should confirm both the hourly rate (as stated in the employment contract) and the number of hours worked during the payroll period (according to the time card or clock).
Consider and verify overtime, sick pay, annual leave, pay increases, and other benefits
Record personal data accurately
The first step in any payroll audit is identifying and verifying the number of active employees. Consider former employees who left since the last pay run, new employees, and those who have been subject to temporary exemptions or payroll changes.
Some employees often commit payroll fraud by adding false employees to payroll. Alternatively, you may have neglected to remove a terminated employee from your payroll.
Check that the list of employees on your payroll corresponds to your employment records. Remove any employees who are no longer your staff. You may need to look into why those employees are on your payroll.
Numerous factors can influence personal data, and it is easy to overlook people with a global team. With this in mind, make a conscious effort to record things like promotions, maternity leave, pay reviews, and overtime as soon as possible.
It may appear to be difficult at the time, but it will make your life easier when it comes time to run payroll
Rectify your payroll
The most crucial step in an audit is payroll reconciliation. It entails comparing your Gross to Net report to the data input you received during the period to ensure they are consistent.
Check that your bank statements and payroll records are in sync. The audit will examine the payroll journals (including those relating to pension contributions and PAYE) to help reconcile against the related bank payments.
The audit will review the payment approval process to help obtain and document proper authorisations
Establish regulatory compliance
A critical component of payroll auditing is ensuring that the information reported to regulatory authorities (such as Revenue) is complete and accurate. Poor compliance can result in an external audit, financial penalties, and litigation in the worst-case scenario.
To that end, a payroll audit must thoroughly review all tax submissions filed with Revenue to ensure their accuracy; it must also check Revenue Payroll Notifications and tax codes to ensure they have been downloaded and applied correctly.
You should check for compliance with local, state, and national laws, regulations, and rules at each stage of the payroll audit.
Check tax withholdings and deposits
Be sure to withhold the appropriate amount of taxes from each employee’s wages.
Verify that all withheld tax amounts correspond to your internal records. Remember that when you have a global business, your risk of errors and fraud increases.
Fortunately, outsourcing your payroll to the right provider can significantly reduce this risk. However, changing providers can be difficult, so Workforce Africa is the best option for your organisation.
Remember that an employee classified as working in the office may have drastically different tax withholdings if they are taxed as if they are working from home.
Examine audit trails
When it comes to payroll, there’s a lot at stake, especially in terms of preventing fraud and monitoring how well your global business is doing.
Failure to organise yourself will expose you to vulnerabilities, and if you don’t keep track of what happened, any money lost may go unaccounted for.
Furthermore, there is a chance that you will be audited by a regulating authority, in which case you will have to produce a paper trail – if you have one. Audit trails are an excellent way to protect yourself and your employees
Evaluate and report findings
The final component of payroll auditing is to take stock of the audit’s study results.
Analyse the results, and make recommendations—both in terms of improving operational practices and proactively developing new processes to become more productive and precise in the future
Check for operational efficiency
After the payroll audit has looked into payment inaccuracies, you should audit the payroll process to ensure that it is still fit for purpose, efficient, and compliant.
From an operational standpoint, this entails completing all administrative tasks correctly.
For example, a good payroll audit will examine the filing systems in place and determine whether they are adequate to retrieve information while maintaining data security quickly.
The auditor will also examine how you address, resolve, and document payroll queries and associated audit trails
Make a Payroll Audit Report
Make a payroll audit report and send it to those who need it
Audit reports should include the heads of HR and Finance. In addition, regular audit documentation can be helpful if problems arise later, such as a lawsuit.
Analyse your findings and report them to management. When you present the audit results, suggest improvements, such as updating how timesheets are approved or authorised bonuses.
One of the effective ways to ensure compliance and preciseness in your global payroll processing is to outsource your payroll audits and related payroll services to payroll companies like Workforce Africa.
Workforce Africa leverages an up-to-date and secure payroll infrastructure to deliver accurate and insightful payroll audits that allow international and domestic organisations to make evidence-based decisions about their payrolls.