Common Control Procedures for Payroll

Our payroll, employee benefits, and related liabilities internal controls checklist includes 34 questions. My top ten are:

1. Are persons preparing payroll independent of other payroll and personnel duties (e.g., timekeeping, distribution of checks, and hiring employees) and restricted from access to other payroll data or cash?
2. Are responsibilities for payroll accounting separated from the general ledger function?
3. Is access restricted to:
1. Blank payroll checks?
2. Facsimile signature plates (if used)?
3. Personnel records?
4. Are employees with payroll responsibilities required to take vacations, and are other employees required to perform those functions when an employee is absent?
5. Is access to computerized payroll records limited to those with a logical need for such access?
6. Are prenumbered payroll checks used, the sequence accounted for, and unissued checks controlled?
7. Are there adequate authorization, approval, and documentation procedures regarding changes in employment (additions and terminations); in salary and wage rates; and in amounts of payroll deductions?
8. Is payment of wages in cash prohibited, except in prescribed circumstances?
9. Are procedures in place to ensure that other withholdings, such as 401(k) and cafeteria plan withholdings, are remitted in a timely manner?
10. If payroll is processed by an outside service organization, are controls in place to ensure that:
1. Time records submitted for processing are complete and accurate, and appropriate control totals are maintained for subsequent reconciliation to payroll registers?
2. All other payroll information provided to the service organization (pay rates, withholdings, etc.) is authorized, and all authorized information is communicated?
3. Payroll registers produced by the service organization are reviewed, reconciled to control totals, and approved by the owner/manager or other appropriate person?
4. Total of paychecks and/or direct deposits agrees with payroll registers?

If you’d like to discuss payroll or other internal controls for your company, please call us.

David Richard
drichard@ddfky.com