Payroll is a key transaction cycle in most organizations. Everyone likes to get paid! However, payroll is commonly an area where fraud can occur if the proper internal controls are not in place. Critical internal controls to help detect and prevent fraud or error within payroll are:
- Wage rates are documented and approved by management or human resources.
- The person processing the payroll and cutting checks does not have access to enter new employees or change pay rates.
- Timesheets are reviewed and approved before wages are paid.
- The person reconciling the payroll cash account is not the person processing the payroll.
- Procedures are in place to remove terminated employees from the payroll system timely.
- New employees entered into the system are reviewed to ensure that no fictitious employees are set up.
- Payroll detail or registers are reviewed and approved before payment.
These basic controls will help segregate duties in the payroll cycle and ensure only legitimate employees of the organization are paid, and that they are paid accurately.