A payroll audit is an inspection of payroll records by a third party to ensure accuracy and identify problems. Internal audits are recommended, while external audits can be requested by tax authorities or insurance companies and can result in legal sanctions.
A payroll audit is an inspection of payroll records by a third party. An audit may be conducted for a variety of reasons, ranging from a desire to confirm internally that payroll information is correct to an inspection on behalf of an insurance company to determine the appropriate premium amount for health insurance. workers compensation. A regular internal audit is recommended, especially in large companies, to ensure that records are accurate and well maintained, and to identify problems before they surface in an external audit.
In a payroll audit, the auditor inspects all payroll-related documentation, checking for accuracy and looking for signs of problems such as employees with incomplete payroll histories, deductions that don’t match contributions, etc. The auditor also identifies which members of the company are responsible for handling payroll procedures, and reviews the company’s protocol for handling payroll to identify problem areas and screen employees to confirm that they are using the most current protocol.
For an internal audit, companies can use their own staff or hire an audit service and have them perform the audit. Using a third party can ensure that payroll audit results have more integrity, because a third party should not have any conflicts of interest that could bias the audit results. Internal audit results can be used to adjust procedures, confirm that employees are following protocol, and identify areas where inappropriate activities may be occurring.
Tax authorities and insurance companies can request external audits. In these cases, the entity requesting the audit either handles the audit or contracts an auditor to perform the payroll audit. Companies should note that an audit rejection is generally considered an admission of guilt. Even if nothing is wrong, when the audit is finally done, the records will be searched for any signs of wrongdoing. It is advisable to cooperate and hire legal advice to obtain more information about what documents must be given to the auditor and how the audit process works.
The result of an external audit can vary, depending on why it was ordered and what the results were. An insurance company, for example, might adjust the amount of a premium based on the audit. If a payroll audit reveals that a company is doing things like collecting tax contributions and not sending the funds to the government, the company will face legal sanctions.
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