PAYROLL AUDIT CHECKLIST
Copyright © Daniel Cullinane CPA.
Just as you conduct routine audits on other general ledger activity, you should also audit the payroll accounts. It is important to periodically verify that the transactions that post through your company's payroll system are accurate to protect you from the losses associated with calculation errors and potential fraud. In smaller businesses, a full payroll audit is more feasible than in larger companies where only a representative sample is taken.
Verify Employment Status
Review the list of paychecks issued during the audit period. Verify that each employee who received a paycheck was actively employed by the company during the time that the paycheck was issued.
Confirm Pay Rates
Check the salary or hourly rate in the payroll system for each of the employees paid during the period. Compare the rate in the payroll system to that physically paid out to the employee to ensure that gross pay calculations are accurate. If there are any questions, verify the pay rate in the payroll system against the employment contract or most current performance review on file with Human Resources.
Calculate Hours Worked
Check the total hours worked for each employee according to the time cards or other time reporting system for that pay period. Make sure that the hours reported are equal to the hours on the paycheck. Verify that any employee who received sick or vacation pay was eligible at the time it was paid and had time available on the books.
Validate Ledger Accounts
Check the transactions posted in the payroll ledger accounts against the total payroll expenses for the period. Verify the vacation pay, personal time and other associated payroll costs against the transactions posted in each of the corresponding general ledger accounts.
Reconcile Bank Statements
Verify that all of the cancelled checks for the payroll account match the payroll checks issued by the payroll department. The payroll bank account should show only transactions confirmed by the payroll accounting reports. Make sure that none of the checks appear to be modified, and that the amounts on the cancelled checks match the amounts on the transaction reports from the payroll ledger.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778