5 Questions You Should Ask Payroll

Throughout my college years, I worked at a movie theater. It was a great experience all around—from being a popcorn popper to a projectionist. They paid me to have fun, with a little work thrown in to keep me honest. Payday was every two weeks, and I would pick up my check from the manager on duty. However, on one payday, an internal auditor from corporate handed out the checks. I showed the auditor my driver’s license before receiving my check. 

Progressing through my studies at LSU, I learned more about internal controls and internal auditing, which provided me with a new perspective about why the auditor wanted to see my license. As part of my internal audit career, I have performed this test myself on several occasions. I am certain that you have seen this same procedure during your career, and some of you may have even performed it during one of your audits.

But, I bet you haven’t seen it performed lately because so many companies pay people with electronic deposits. Don’t get me wrong, this is a much easier way for a company to run payroll, but it creates a different set of risks than does issuing paper checks. What controls does your company have in place to mitigate the risk of fraud? You could be overpaying someone, paying a ghost employee, paying a terminated employee, or paying others without even knowing it.

You may want to ask someone in your payroll department the following 5 questions:

1. Who prepares the file for transmission? There could be more than one person doing this, and they should be following a consistent process to ensure the file is accurate and complete. The file should be an exact copy of what was generated from the payroll system.
2. Who reviews it prior to transmission? This could be a monster task, and the process for reviewing should address the risks of errors and/or changes made by the preparer.
3. Can the data be changed? There should be electronic controls to prevent changes to the file after it is prepared and reviewed. If an error is discovered at any point, the process should be restrictive to prevent changes to the file once it is prepared.
4. How is it transmitted? The process should have significant controls to ensure safe transmission from the company to the financial institution to prevent changes to or theft of information.
5. What type of confirmation is provided by the financial institution? It is important to obtain detailed confirmation to save as an audit trail. This file should also be tamper proof and stored in a safe place. The file can be beneficial for monitoring purposes in the future.

NOTE:  These concerns focus on the process of preparing payroll information and sending it to the financial institution.

Don’t be afraid to start asking questions to get a better understanding of what’s going on in your payroll department. Based on some of the answers you receive, you may want to ask some follow-up questions. I plan to publish a follow-up blog to give you some ideas that will help you address challenges arising from depositing funds electronically. But, until then, you may want to do a little research on good follow-up questions for your payroll department.

For weekly insights on fighting financial fraud, click here: