Accurate payroll management is considered one of the most crucial responsibilities of a business, as it will eventually affect all areas of operation. Even with a reliable payroll audit and processing system, an error can easily occur and commonly do. Payroll audits can alert you regarding mishaps early on in the process and is a great way to catch or even prevent ghost employees.
What’s a Payroll Audit?
A payroll audit is the analysis of the payroll processes, ensuring accuracy and examining things such as active employees, pay rates, wages, and tax withholdings. These audits should be conducted at least once per year to verify the process is up-to-date and legally compliant. Typically, payroll audits are internal (conducted by those within the company). They can catch errors and prevent future external audits.
Regularly performing a payroll audit can:
- Prevent fraud by finding ghost employees or inaccurate time cards
- Catch manual inputting errors
- Spot calculation mistakes
- Remove former employees from the payroll
- Verify your tax withholdings are accurate
- Accurately account for paid or unpaid time off
- Compare hours paid and clocking in
- Ensure compliance with employment laws
A simple audit can help avoid the issues of doling out excess money, breaking employment laws, and remitting incorrect tax amounts. It is crucial to maintain compliance and strengthen the company’s financial controls.
More on its Importance
Regular audits verify the rate of pay on each employee’s pay distribution against the rate of pay in the payroll ledger, and that hourly employees have recorded the actual hours that they were paid for the time period being audited. You can verify time cards, your own payroll reporting system, and the paychecks that were given. It will also confirm the accuracy of sick time and vacation pay, and that the employees receiving it was eligible for that pay.
Errors in accounting and inefficiencies with record-keeping are far too common. Audits assist with the correcting or improving compliance practices, reviewing payroll ledger accounts, and verifying each against the transactions listed in the ledger (including the paychecks, withholding, insurance, and taxes).
Plus, regularly reviewing and reconciling banking activity is crucial, which can be part of an internal payroll audit process.
An employee that is no longer employed by the company can still be receiving paychecks, which is considered a ghost employee. This can happen if the right procedures were not followed, or were overlooked. Protect your business with proper preventative measures.
About World Wide Specialty Programs
For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage, we have available to protect your staffing business, give us a call at (877) 256-0468 to speak with one of our representatives.