Chapter 3 Auditing Payroll and Personnel Cycle-1
Chapter 3 Auditing Payroll and Personnel Cycle-1
Introduction
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ensuring that documents confirming entitlements to over-time or other
monetary benefits are signed by the immediate superior of the employee (the
superior must not be engaged in payroll preparation and effecting of salary
payment);
verifying that duties such as ascertaining the accuracy of attendance sheets
and the preparation of payroll are not carried out by the same staff.
checking that gross pay, deductions, allowances and unclaimed salary have
been computed accurately and on the basis of current scales and eligibility;
ascertaining that the accuracy of payroll calculations is verified by a staff
member other than those preparing the payroll;
Checking that any changes to staff salaries, arising from such factors as the
employment of new staff, promotion, dismissal, fine or court judgment, are
communicated to the payroll section before the preparation of the payroll
sheet;
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Assuring when allowances are paid in addition to basic salary, that
documents exist in the individual personnel files of officials and ordinary
staff members receiving allowances, which certify their eligibility to the
allowances;
Ascertaining that the payroll sheet prepared for effecting the payment of
wages to daily laborers is supported by contracts of employment and a
signed attendance sheet;
Confirming that the different duties in the payroll section ranging from
initiation of payroll calculations to delivering the payroll sheet for the
effecting of salary payment are carried out by different persons;
Checking that the various staff members who are engaged in preparing,
reviewing and approving the payroll sign in their respective places on the
payroll sheet;
Ascertaining that the accuracy of details in the payroll sheet such as names,
working hours, over time, salary scale and the computation of deductibles, is
verified by a staff member who is entirely independent of those who have
prepared the payroll sheet;
Ensuring that the total salary payment for each month is compared with the
payment made in the previous month and that the causes of any difference
are identified and explained.
Audit objectives
to ascertain that there is a strong internal control system to prevent theft and
fraudulent acts during the preparation of payroll sheet, recording and effecting of
salary payment;
to ascertain that deductions from salaries are made in accordance with the existing
proclamation and other relevant legislation;
to ascertain that the salary payment being effected is for services rendered by
employees and to ensure that the persons who receive salaries actually exist, and
are in fact entitled to the payment of salary;
to ascertain that the payment of allowances is effected strictly in accordance with
the relevant legislation;
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to ensure that the arrangements made with respect to unclaimed salary are in
accordance with regulations and that the unpaid sums are correctly retained and
properly recorded;
to ensure that the necessary controlling mechanisms exist to prevent unclaimed
salary being utilized improperly.
5. Audit procedures
The following audit procedures should be followed in order to ensure the proper
control of salaries and wages: -
See whether the personnel section holds employees personal files, which
contain information such as letter of engagement, letter of resignation,
notification letter of salary scale, documents related to special deductible
items, and other relevant information;
Ascertain that employees personal files are kept in the custody of a staff
member who is not part of the accounts division or payroll section.
Ensure that the accuracy of attendance sheets (or similar documents for
those under contract) have been approved by appropriate officials not
involved in the preparation of payroll;
Ascertain that staff members who are responsible for ensuring the accuracy
of attendance sheets are not involved in the preparation of payroll;
Check that documents giving an entitlement to the payment of overtime and
other benefits are signed by the immediate superior of the employee who is
eligible for that entitlement (and that such superior is not involved in the
preparation of payroll and effecting of salary payment).
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5.3 Computation of Payroll
Ascertain that the payroll clerk does not have direct access to employees
personal files;
Ensure that the computation of gross pay and deductibles have been made in
compliance with the present scales of pay and eligibility;
Check that the staff member who verifies the accuracy of the computation of
payroll, has no involvement in payroll preparation.
See that a separate column is maintained in the payroll sheet for deductibles
of a repetitive nature such as income tax, pension, repayment of loan and the
like;
Check deductions other than those authorized by law (such as deduction for
edir contribution, resettlement bank loan, family allowance, and the like) to
ensure that the deduction is in accordance with an approved written
application from the employee (or other official document) and that such
documentary evidence is kept in the personal file of the employee;
Ascertain that collections from deductibles have been paid to the correct
beneficiary account in full and in a timely manner.
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Ascertain that the accuracy of details shown in the payroll sheet such as
names, gross salary, working hours, over time and the computation of
deductibles has been verified by an official with no involvement in payroll
sheet preparation;
Ascertain that the payroll sheets have been signed by the payroll clerk, the
staff member responsible for checking and finally by the designated official
who authorizes the payment;
Verify that the salary payment for each month has been compared with the
payment for the previous month and that the causes of any differences are
identified and reconciled;
Check that every employee on the payroll signs on the payroll sheet to
acknowledge the receipt of the net pay;