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ROUND ROCK INDEPENDENT SCHOOL DISTRICT

PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM GENERAL The Payroll Department is responsible for processing 48 payrolls annually for over 4100 monthly, bi-weekly, and substitute employees. The Department also plays a critical role in the administration and recordkeeping of various benefits offered by the District. Administering the payroll requires a high level of knowledge of many State and Federal laws and regulations, as well as a thorough understanding of the Districts policies with respect to employment and benefit issues. AUDIT OBJECTIVES 1. 2. 3. 4. 5. 6. Comprehensive policies and procedures addressing payroll activities have been developed and documented; The District is in compliance with established policies and regulatory requirements; Access to payroll records is limited to authorized personnel; Wages and taxes are authorized and accurately recorded; Payrolls are properly prepared, approved, and recorded; and, Recorded balances are regularly substantiated and reviewed. W/P REF AUDITOR INITIALS

AUDIT PROCEDURES 1) General a) Obtain: i) Policies and Procedures ii) Prior Audit Reports iii) External Auditor Management Reports iv) Regulatory Examination Reports v) Job Descriptions and Organizational Chart vi) Related Information of Laws and Regulations

b) Review policies and procedures to determine adequacy. c) Review prior reports to determine whether corrective action has been implemented for noted deficiencies.

2) Lead Schedule a) Prepare a lead schedule of all accounts affected and indicate the balance as of the audit date. Prior to completion of the audit, ensure that all accounts have been verified by reconciliation, analytical review, or testing.

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT


PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM 3) Payroll Processing a) Document the flow of documents through payroll processing. W/P REF AUDITOR INITIALS

b) Payroll procedures should be reviewed for appropriate controls to ensure the accuracy of salary payments. Verify the following: Signatures of employees preparing salary payment calculations and the officer reviewing the same should be evidenced on the appropriate register. ii) Ensure that file copies of Employee Statements of Earnings and Payroll Registers are maintained in the custody of the Payroll Department personnel. iii) A supervisor should review all computer/manual payroll registers to ensure that the information has been accurately entered and captured, and should sign the register and accounting entries to evidence review. c) Select a sample of individuals from the last payroll register and perform the following: i) ii) iii) iv) v) vi) vii) Trace the pay rate and all deductions to properly authorized forms in the employees personnel file. Agree departmental classifications in payroll. registers with personnel records. Trace any overtime pay to properly approved forms. If time cards are used in the calculation of gross pay, determine that they have been properly calculated, approved, and filed. Recalculate all amounts, including gross pay, deductions, stipends, and net pay. Trace elective deductions to signed authorization forms and reference taxes to appropriate sources. Trace to appropriate disbursement to employee. Trace total payroll amounts to posting in the proper general ledger accounts. i)

d) Document controls for protection and distribution of payroll checks. Conclude on adequacy. 4) Utilized Forms a) Obtain copies of all forms used by the department. b) Evaluate for adequacy and effectiveness. 5) Generated Reports a) Obtain copies or examples of all reports generated for the personnel and payroll departments and determine their use and distribution. Include system reports, PC reports, and manual reports. Ensure that the information presented in these reports is tested or analyzed at some point in the audit program.

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT


PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM 6) Time Accounting a) Inaccurate time reporting could result in excessive salary expense or violation of wage and hour laws. Select a sample of recently completed time cards/time sheets and verify the following: i) The time worked is properly recorded. ii) Reasons for absences, early departures, tardies, and overtime are indicated and approved. iii) Overtime is properly calculated and reported. iv) The time card/time sheet is signed by the employee and approved by the supervisor. b) Document the operation of the Kronos timekeeping system. Test as necessary to ensure that the system is functioning as intended and that time is accurately recorded. 7) Absence Reporting a) Improperly reported absences could result in incorrect recordkeeping and additional expense. Interview management and employees and review absence reports to evaluate the following: i) ii) iii) iv) Daily records of attendance are maintained. Vacations are scheduled to ensure that efficient operations are maintained. Attendance and tardiness guidelines are communicated to all employees. All absences are reported in a timely and accurate manner. W/P REF AUDITOR INITIALS

b) Review attendance records and check that appropriate disciplinary actions are evidenced for those employees showing abuse of attendance or tardiness guidelines. c) Evaluate the Districts liability for unpaid vacation days. Consider issuing confirmations to a sample of employees to verify accuracy of vacation balances and proper reporting of leave.

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT


PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM 8) Expense Control a) Inadequate control over payrolls could result in fictitious individuals receiving payroll funds. Select a payroll register for testing and compare it with input records submitted for payroll processing. Determine the reasons for any differences in the information and follow up any exceptions with management. W/P REF AUDITOR INITIALS

b) Scan salary expense amounts for the prior 12 months. Follow up on any unusual fluctuations noted. Or, compare prior period salary expenses to current period expenses and current budget (by department or campus and in total) and investigate significant variances. c) If deemed necessary, validate the payroll register by selecting a sample of employees and physically verifying their existence.

d) For payroll benefit expenditures and accruals, perform the following: Compare accruals for compensated absences such as vacation and sick leave to prior period actual and current budget, and compare the relation of amounts to gross pay with the same ratio for the prior period. ii) Identify bonuses, stipends, PSAs, or other unusual compensation, and inspect evidence of approval. iii) Evaluate reasonableness of accrual for payroll expenditures at the end of the period. i)

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT


PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM 9) Tax Sheltered Annuities a) Examine documentation of external audits performed for IRS compliance and evaluate the adequacy of procedures and accuracy of results. W/P REF AUDITOR INITIALS

b) Determine the number of District employees participating is tax sheltered annuity programs, the monthly contribution for each employee, and the number and names of vendors providing these annuities. c) Select a sample of employees participating in 403(b) plans. The sample should include at least one employee for each vendor identified, one new employee, and employees with large elective deferrals relative to their compensation.

d) Review documentation of the payroll deductions for the employees to determine that: The deduction is supported by a written agreement which is signed by the employee and an authorized District administrator, specifies a dollar amount or a percentage of compensation, and is dated before the first day of the pay period in which the salary reduction commences. ii) There is no more than one salary reduction agreement executed each calendar year. iii) The amount of the deduction agrees with the amount authorized by the employee. iv) Documentation supporting the calculation of contribution limitations indicates that the calculations are correct and the deduction does not exceed the limitation on elective deferrals. e) Review the annuity contracts and documentation of custodial accounts to verify compliance with IRS regulations, in particular that the tax-sheltered annuity is not transferable or forfeitable, and that there is no conflict with the distribution requirements. i)

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT


PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM 10) Reconciliations a) Obtain the reconciliations of all payroll-related deposit accounts and payroll-related liability accounts. Trace balances to the general ledger, bank statements, and supporting documentation. Test transactions as necessary. Verify the accuracy of the reconciliation and the propriety of any outstanding items. W/P REF AUDITOR INITIALS

b) Evaluate reconciliations to ensure that business standards are implemented, including: i) ii) iii) iv) v) Reconciliation is prepared within thirty days of the end of the period. The account title and account numbers are documented. The general ledger date is documented. The reconciliation balance ties to the general ledger ending balance. Signature of the preparer and the reviewer as well as the respective dates are documented. vi) Descriptions of outstanding items are adequate and explicit. vii) Origination dates of outstanding items are clearly documented. viii) Reconciling items are cleared within sixty days. ix) Backup documentation, including general ledger pages, reports, etc. are attached. x) The reconciliation is clear and able to be reasonably understood by individuals not involved in its preparation. c) Examine in detail the contents of the most recent bank statement. Ensure that all checks carry the appropriate signatures and verify the propriety of the endorsement. Compare dates on the deposit slips to the date the deposits were recorded by the bank to ensure that deposits are being promptly processed.

11) Regulatory Reports a) Failure to file required reports could result in fines or other disciplinary action. Determine that all required reports (both State and Federal) and tax reports such as Form 941 are prepared accurately, approved by a supervisor, and submitted on a timely basis by examining the most recently filed copies. Verify the accuracy by tracing values to the corresponding payroll report.

12) Budget a) Obtain the Payroll Departments budget reports as of the most recent month-end. Review for significant overdrafts, serious fluctuations from initially budgeted figures, and unusual entries.

b) As necessary, test a sample of transactions for accuracy, reasonableness, and adequacy of supporting documentation.

10/24/03

ROUND ROCK INDEPENDENT SCHOOL DISTRICT


PAYROLL
AUDIT PROGRAM
AUDIT PROGRAM 13) Custody of Payroll Records a) Ensure that access to payroll records is limited to authorized employees only. Determine whether files are consistently safeguarded during and after business hours. W/P REF AUDITOR INITIALS

b) Determine that blank check stock is adequately safeguarded.

10/24/03