Is It Critical to Audit Your Payroll Systems?

Is It Critical to Audit Your Payroll Systems?

Payroll systems and processes must be monitored regularly in any organization to help with cash flow. Payroll is often considered one of the most significant expenses a business can face when things go wrong, so prevention is always better. To avoid payroll errors which can, in turn, lead to fines and penalties, regular auditing of payroll is essential.

Even if your payroll system is handled internally or outsourced to an accounting firm, mistakes can always occur (mainly when people are involved!). Even the most dependable technology may fail. You can prevent 65 percent of these issues with a monthly payroll audit. It also fulfills GDPR standards since employee data is kept up to date, meeting all those requirements.

What is a Payroll Audit or Payroll Risk Assessment?

A payroll audit, also known as a payroll risk assessment, examines a company's payroll system and practices. The goal of a payroll audit is to identify and correct any potential errors or vulnerabilities in the system. It can also help ensure compliance with government regulations and standards.

Payroll audits verify payroll records. These records are compared throughout the audit to determine whether they match:

The payroll audit process can be conducted internally or externally. An external auditor is often used to provide an objective perspective. A payroll audit is an essential first step toward compliance.

Why is it Necessary to Do A Payroll Audit?

Conducting an audit may be time-consuming, but you should do so at least once a year to detect and minimize future business risks. The audit will look at a company's current active employee information, pay rates, wages, and general taxes.
Regular auditing is necessary to guarantee that the payrolls are compliant with HMRC and to avoid penalties and dissatisfied workers in the future.
While a payroll audit is critical to maintaining compliance, it's also vital to audit the company's payroll systems regularly to ensure nothing goes unnoticed. Information is constantly evolving, just as we've seen throughout the Pandemic with furlough pay entitlements. If businesses conduct payroll audits on a regular basis, this makes updating their systems considerably easier.

Avoiding Payroll Risks

Payroll risks are anticipated risks that can rapidly grow within a company, damage its reputation, and have financial consequences. To minimize the risks of payroll errors, businesses need to conduct regular audits to ensure information is reliable and accurate.

Here are some of our key pointers on how to avoid payroll risks:

Conduct Walkthroughs of Payroll
Conducting a payroll walkthrough can help identify any potential risks in your system. The walkthrough should include the following steps:

  1. Review the company's payroll policies and procedures
  2. Verify the accuracy of employee time records.
  3. Compare wage information with time records.
  4. Review payroll tax information.
  5. Ensure the payroll system is compliant with external regulations and standards.
  6. Monitor payments to ensure they're paid correctly, on time, and by the company's policies.
  7. Review the company's benefit plans.
  8. Monitor employee data for consistency, timeliness, and accuracy throughout your systems and processes.
  9. Identify any gaps or risks in the system.
  10. Make recommendations for improvement.

Regular payroll audits can help businesses avoid potential risks, penalties, and compliance issues. It's essential to stay up-to-date on government regulations and standards to ensure compliance.

Benefits of Using Automation to Enhance Payroll

If you use technology, a payroll audit is considerably easier. Payroll processing is challenging, and auditing payroll necessitates the analysis of hundreds (or thousands) of transactions.
Perform payroll operations in less time and minimize manual effort while performing a payroll audit using reliable and accurate payroll software like Brain Payroll.
Contact us to explore how payroll audits can help your business stay compliant and improve efficiency by a minimum of 30%. Book a free demo now!

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