Question

It is believed by many experienced auditors that risk in payroll is an issue primarily at two locations – (1) when an individual enters the payroll system and (2) when the person leaves the payroll system. Once an individual is on the payroll, then routine occurrences such as annual raises are recorded routinely. The concern is with the possibility of “ghosts”; individuals who do not exist but get a paycheck. Obviously, someone is getting the paycheck and segregation of duties between human resources and payroll can mitigate this risk.

What additional internal controls can you suggest that you think might additionally reduce this risk of payroll ghosts? Please write an articulate, thoughtful response to the question above. This response should be 200-250 words in length

Answer 1

Whenver an employee is apponited , its copy of appointment / joining letter should be furnished into accounts deptt / IT deptt. who prepare & release / disburse the payment. Salary/ wage sheet should be prepaed by HR-Assist. and should be verified by HR/ personnel officer and it should be again checked by accounts person(Assistant-accounts) and should be verified/ approved by accounts executive to ensure the payment has been made as per agreed terms and respective order released. Copy of such orders should also be sent to IT section who add or delete the name of emplyees from IT Pay roll. . Increments / leave encashhments, bonus,etc should also be checked both by accounts and personeel deptt to ensure the revision has been made in terms of annual compensation revisions. Thus three deptts are responsible for payroll system ( time office, accounts and IT).

Whenever any individual leaves the organisation, HR deptt should issue the release order and its copy

should be furniished to the relevant deptt ( concerned deptt where a individual works, accounts and IT dept).

Accounts deptt should obtain NO DUE Certificaye from time office and prepare final payment. Cheque of final payment should be handover to individual by cashier in presence of accoumts and HR persons. An auditor

should check from HR or finance deptt that how many employees have joined newly and had left the organisation and to check with the payroll system. Accounts deptt should see whether time office (HR deptt) have removd the

individual's name who had left the organisation.

HR deptt should review periodically that how many employees are working in differenet deptts and confirm from

accounts deptt that payment (pay roll etc) are also being released to these employees only.

When an employee joins a company, a separate personnel file should be opened and all relevant papers should be filed therein for proper records. When an employee leaves the company, that file should be kept separately.

All payment should be made through cheque rather than in cash.

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