Finding Text
Payroll Documentation and Approval Deficiencies Condition: During our testing of payroll-related records, deficiencies were identified in the documentation and approval processes for both pay rates and employee timecards. Specifically, in one instance there was no documentation in employee file of approved pay rate, and for a specific pay period following the client’s mid-year transition to a new payroll software system, approved employee timecards were unavailable for six employees. These issues resulted in a lack of approved pay-rate documentation and missing evidence of supervisory approval for hours worked. Criteria: Organization policy and internal control best practices require that (1) all employee pay rates be approved by authorized personnel and documented prior to implementation, and (2) all employee timecards be reviewed and approved by supervisors prior to payroll processing. These controls are essential for ensuring accurate, authorized wage payments and compliance with labor regulations. Cause: The identified deficiencies were due to (1) the termination of an employee during the audit year and the subsequent lack of retention of their employment file, and (2) a temporary disruption in timekeeping and approval workflows resulting from the client’s transition to a new payroll software system, which led to the inability to migrate or retain timecard approvals for the affected pay period. Effect: The absence of approved pay rate and timecard documentation increases the risk of payroll inaccuracies, unauthorized payments, and non-compliance with labor regulations. It also limits the organization’s ability to validate payroll transactions during audits or employee disputes. Recommendation: Management should establish and enforce formal processes for documenting pay rate and timecard approvals. These procedures should include written authorization by appropriate personnel, retention of approval records in a centralized and accessible location, and adherence to document retention policies. Additionally, management should implement measures to ensure continuity of payroll documentation during system transitions, such as retaining historical records, validating data migration, and establishing contingency plans to maintain compliance. Views of Responsible Officials: See attached response