Auditing: Salaries and wages

what is salaries and wages

material expense, influence stock valuation, impact cash: fraud/theft, small amounts and high volume, internally generated transaction without physical documentation

salary

fixed pre determined amount, paid monthly by EFT

wages

paid by productive hours, paid weekly with cash

salaries and wages cycle

initiate, execute, record, process

initiate

need for appointment approval, interviews conducted, suitable employee hired and appointment letter drafted, employee

execute

employee clocks in for work and timekeeping of employees hours

record

Salaries Journal/reprot prepared for salaries of employees and wages journal/report prepared for wage employees

Process

wages journal posted by accounting division, salaries journal posted by accounting division, wages and salaries employees are paid, 3rd parties paid

appointment and authorisations

Request for appointment

Advertisement- after HR approves request considering budget

suitable candidate- HR reviews and selects candidates

competent and qualified- undergo aptitude and competency tests

interview- ;ine manager and HR manager do interview

appointment

appointment

follow up references

check record

verify qualifications

check results of tests

make ID copy

obtain proof of address

Obtain bank account details

Candidate appointed

apointment contract issued with conditions and stipulations, signed by employee and HR manager. copies to employee and HR

personnel records: employee file

contains employee number appointment letter, appointment date, compensation, fringe benefits and deductions prepared by HR clerk

Deduction authorisation form

perpared by HR manger and employee. copies to employee and HR

compensation/tariff/scale amendment

employee. line manager and HR manager involved. copies for HR and employee

Termination of service form

Employee, line manager and HR manager involved. copies for employee and HR

Time keeping and checking hours worked

Admin clerk a issues cards, admin clerk B receives them back. employee shows card and signs clock card register.

reconcile issued versus received and employee signs

clock card contains: employee number, name, date, hours worked(normal vs OT). admin clerk and line manager involved

preparation of payroll

hours*Tariff=gross less deductions=Net wage

agree hours to clock cards

Agree tariff to appointment letter or ammendment form

agree deductions to authorisation form

recording of payroll

payrool clerk A prepares payroll(employee name, number, hours worked, tariff, gross and net wage and total)

Payroll clerk IR(redoes calc) and payroll manager auth(samples)

recording of wages

SoD of appointment, maintenance of permanent files, safeguarding clockcards, accounting and pay-out

post wage journal entries and processing wage journal entries to GL and General journal

Clock cards-wage journal-GL-TB and then FS

payment division

payroll clerk B issues wage slip(transactions per employee and year to date totals) copies to employee and payment division

payment controls

Payroll manager approves wage journal and loads payment

Financial manager approves wage journal and payment and stamps wage journal as paid or not

wage payout

preparation of wage envelopes, safekeeping and custody of envelopes, wages handout, unclaimed wages

preparation of wage envelope

2 clerks prepare envelopes based on wage journal and indep review each other

safekeeping of envelopes

locked away until handout, line manager takes custody when ready to handout, compare list of employees and number of envelopes and sign if reconcile

wage handout

handed out by two people and 3rd independent person, when collected by employees they should identify themselves, count money and compare with wage slip, sign wage payout register, cannot collect on behalf of another person

unclaimed wages

line manager/department supervisor and independent person sign wage pay out register and identify unclaimed enevlopes at end of handout

unclaimed wages

record unclaimed wages, safekeep unclaimed wages, wage handout, still unclaimed

record of unclaimed envelopes

line manager/department supervisor records information of unclaimed wage envelopes in unclaimed register

safekeeping of unclaimed wages

payroll secretary takes custody of unclaimed envelopes. agrees wage register to number of envelopes and signs as custody

wage payout

Upon collection of envelopes the employee must identify themself, count money in envelope and compare to wage slip and sign unclaimed wage register

still unclaimed

if not collected within reasonable period. then deposit cash back into business account using unclaimed wage register as document, independent manager should regularly follow up on unclaimed wages and usual suspects of unclaimed wage

calculation and preparation of payroll for salaries

payroll clerk a prepares, basic salary+allowances-deductions=net salary

agree basic salary to appointment letter or tariff amendment form, agree deductions to authorisation form.

recording of salary

payroll clerk A prepares salary journal with employee name, number, date, scale, allowance, deductions, gross and net salary

Clerk B reperforms calcs and payroll manager smaples calcs

posting of salary journal entries and processing the salary journal entries to the general journal and general ledger

monthly salary run, salary journal(financial manager reviews details and reperforms calcs), GL, TB and the FS

calculation and payment

payroll clerk B prepares pay slip(employee name, number, basic salary+allowance-deductions=net salary) copies to employee and payroll department

payment of salaries

Payroll clerk b does payment schedule, EFT payment requisition and laoding EFT onto internal system. all reviewed by payroll manager

financial managers roll in payment of salaries

segregation of duties for approval, review documents(payments-pay slip, number of payments-employee list, employee banking details per record, ensure payment is made from designated salary bank account). SoD for salaries journal and poting to GL and creditors ledger

calculation and payment of amounts to thrid parties

admin assistant and payroll manager prepare income tax per employee, contains payments received and tax deducted per employee for the year. copies to employee and payroll.

admin assistant agrees total per irp 5 form to amount in salaries and wage journal.

Payroll manager agree amount in Salaries and wages journal to IRP 5 form and reviews unusual items

payment of deductions to third parties

admin assistant agrees total per return form to amount per salaries and wages.

Payroll manager agrees total per return form to amount per salaries and wages and reviews unusual returns

Return document contains is for tax, pension fund, Medical aid, UIF, etc

copies given to employee and payroll

risks related to appointment and authorisation

ghost employees added

unauthorised salary rates

employee appointed without proper HR auth

Personnel records risks

inaccurate employee master file date

changes to banking details not authorised

terminated employees remain on payroll

time keeping risks

hours recorded inaccurately

time sheets manipulated

Over time not properly authorised

calculation risks

incorrect wage rate applied

deductions calculated incorrectly

payroll total incorrectly calculated

recording risks

payroll journal entries posted to wrong account

payroll not posted to GL

cut off errors-wrong periods

Payment risks

payments made to incorrect bank accounts

duplicate payments processed

payments made for amounts different from payroll

payment of deduction risks

PAYE/UIF not paid to SARS on time

Incorrect amounts remitted to third parties

deductions withheld from employees but not paid over