Finding 2018-002 – Controls Over Payroll Procedures

Criteria: Management is responsible for maintaining an adequate internal control structure surrounding key processes and cycles, in order to facilitate accurate and timely financial reporting.

Condition: During the current year audit, the University did not have adequate internal controls in place over payroll procedures.

Context: During the current year audit, the following issues relating to payroll were identified:

• Certain employees who are required to submit time sheets are not completing them
• Completed time sheets are not properly approved by a supervisor
• Vacation leave is not being properly reported to payroll via time sheets
• Leave time not being taken in accordance with University policy
• Withholdings not tracked and remitted to appropriate agencies in a timely manner resulting in inaccuracies and additional payments for penalties
• Improper classification of employees related to retirement plans
• Former employees being paid benefits after termination
• Current employees not having appropriate withholding from payroll for benefits
• No documentation of required levels of approval of new hires, promotions or pay rate changes
• No payroll change reports processed or reviewed by someone independent of payroll

Effect: The absence of effective internal controls in relation to the payroll process could affect the accuracy of financial statement information. This weakness in accounting infrastructure increases the risk of errors in the financial records and is less likely to detect irregularities, including fraud on a timely basis.

Cause: The above condition appears to be the result of a lack of internal controls and segregation of duties within payroll procedures.

Recommendation: We recommend the University review internal controls surrounding payroll procedures to ensure adequate segregation of duties and approvals are put in place. Further, all supporting documentation including pay rate approvals and timesheets should be maintained.

Views of responsible officials and planned corrective action: Management agrees with the finding. See corrective action plan.

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