Payroll Processing Internal Controls

Particulars Control Overview

Ensure Segregation of responsibilties

amongs different individuals or
Segregation of Duties departments to prevent a single person
from having control over all aspects of
payroll processing.

New joiner data entry verification ensures

New Joiner Data Entry Verification accurate and complete entry of employee
information into the payroll system.

Reviewing payroll data and calculations

Pre-Payment Audits before processing payments to identify
and correct errors and discrepancies.

Dual verification requires two individuals

to independently review and verify
Dual Verification of Payroll Inputs
payroll inputs to ensure accuracy and
completeness.

Post-payment reconciliation helps

reconcile payroll disbursements along
Post-Payment Reconciliation with accounting records and bank
statements to ensure the accuracy and
completeness of payments.

Authorization controls ensure that

Authorization Controls designated personnel approves payroll
transactions before processing.

Access controls restrict access to payroll

Access Controls systems and data to authroized personnel
only.
 Regular review and approval of payroll
reports by the management help ensure
Review and Approval of Payroll Reports
accuracy and completeness of payroll
processing.

Automated controls built into payroll

systems help enforce compliance with
Automated Controls in Payroll Systems
policies and regulations, as well as
prevent errors and fraud.
Processing Internal Controls

Control Risk Mitigated

Assign different individuals to handle
payroll, data entry, payroll approval, and
payroll disbursement. For example, one
person may input hours worked, another
verifies the accuracy of data, and a third
person authorizes payment.
This control helps mitigate the risk of
fraudulent activities such as unauthorised
changes to employees records or fraudulent
payments.

Establish a standardized process for
entering new employee data into the
payroll system, including verification steps
to confirm the accuracy of entered
information. Require a designated
individual to review and verify.
This control reduces the risk of errors
oromissions in new joiner data entry, such
as incorrect personal details, salary
information,or taxwithholding elections,
which could lead to payroll processing
errors

Conduct thorough reviews of payroll data, Pre-Payment audits help prevent incorrect
including hours worked, wages, deductions, payments, such as overpayments or
and taxes, prior to initiating payments. underpayments, reducing the risk of
Utilize payroll software with built-in financial losses and employee
validation checks to flag potential errors. dissatisfaction.

Assign two employees to independently

review and verify payroll inputs, such as
Dual verification reduces the risk of errors
hours worked, wages rates, and employee
in payroll inputs by providing an additional
deductions. Both individuals must sign off
layer of review and validation.
on the accuracy of the inputs before
processing.

Compare payroll disbursements recorded

Post-payment reconciliation helps detect
in payroll reports with bank statements
errors, such as duplicate payments or
and general ledger accounts. Investigate
unauthorized transactions, ensuring
and reconcile any discrepancies identified
financial accuracy and integrity.
during the reconciliation process.

Establish a clear hierarchy for approving

payroll transactions. For example, payroll
Unauthorized or inappropriate changes to
changes must be approved by a manager
employee records and payments are
or a supervisor, and a finance manager or a
mitigate by requiring proper authorization.
payroll administrator must authorize
payments.

Limit access to payroll systems and

Unauthorized access to sensitive
databases to individuals who require it for
information such as employee salaries and
their job roles. Implement password
personal data, is mitigated, reducing the
protection, user authorization, and role-
risk of data breaches and misuse.
based access controls.
 Errors or discrepancies in payroll
Supervisors or department heads are
calculations or payments can be identified
required to review and approve payroll
and corrected before payments are made,
reports before processing payments.
reducing the risk of financial loss or
Implement a formal sign-off process.
compliance issues.

Utilize payroll software with built-in Automated controls reduce the likelihood
controls such as validation checks for data of human error, ensure consistency in
accuracy, automated tax calculations, and processing, and provide and audit trail for
approval workflows. accountability.