Payroll Audit/Investigation and Personnel File Review (on-site audit)Information gathering only.

The payroll audit will include an overview of the payroll process: What is the payroll workweek, pay times, fiscal year. How timesheets are completed and approved (clocking in/out procedures/controls) for different

departmentso Missed or incorrect puncheso Incorrect timekeeping procedures handled as performance issueso Excessive corrections or adjustments for late submissions

Wage/hour compliance (overtime, meal periods, complete time cards) Spot check time sheets against payroll records Ensure no comp time practices (illegal in CA) Deductions – are you taking deductions? Must be legal, pre-arranged. Cannot take vacation

make up from final wages. Payroll related forms and policies, such as the meal period waiver, attendance policy, time off

with pay, make up time, etc. – request all payroll related forms & policies Personnel file review (pull 3-5 random files and verify against checklist) Investigate any employee allegations: under and over paying hours (i.e. determine if employees

are being paid more or less than the actual hours worked). Determine if timecard fraud occurred and offer solutions to prevent timecard fraud. Interview employees and supervisors.

Verify employee status change or personnel action form process against payroll transactions

Also included but not stated above: Chain of control – who can make changes to payroll

o Ensure that duties are assigned so that no one person is in a position to perpetrate and cancel/hide errors/irregularities in the normal course of their duties.

Mangers/HR create pay changes and status changes – all must be approved Payroll only administers these docs, can make no changes on its own Verify no diversions of funds

o Who verifies payroll?o Who has access to the data?

Section 125 - pretax Make up or Comp time practices Payroll fraud – who enters data for payroll employees, who audits change reports, who can

create employees? Flag employees with no withholding, employees who change exemptions frequently, one SSN used by two people, two checks in a pay period, checks going to the same address, checks going to PO Box.

Expense reports (reimbursed in payroll) How do you handle partial day docking, full day docking? Do you have policies? Exempt absences –charged to leave banks for 4 hrs or more in a day, no partial day deductions

Employee verification – employees on payroll are real/active and that terms do not remain on the payroll.

o People who come and go – how is this handled – Seasonals? Others? How are you paying holiday pay – double time for people who work it What is the formula for accrual of sick/vacation – 1-5 yrs, etc. Consistency of accrual on vacation/paid time off/paid leave, must be consistent

Additional items Payroll tax returns Deductions audit (e.g., 401k deductions, garnishments, employee-portion of premiums, exempt

pay deductions). Trace sample deductions to original documentation. Ensure employee authorizations for deductions on file.

Internal equity (requires a report reflecting the jobs, years of service and rate of pay) W-2’s Payroll changes (pay increases, etc.) – compare to source documents Direct deposit process/forms LOA tracking/process FLSA – misclassifying employees as exempt Overall payroll fluctuations I9 process and social verification SSN verification/kickbacks Absence reporting/processing Verify amounts taken for pension contribution match employee form and what was sent to

vendor Verify disability leave policy/pay/coordination – do you accrue during leave