Finding Text
2023-002 Lack of Review on Payroll Transactions/Payroll Files
Significant Deficiency
Criteria – Management is responsible for establishing and maintaining internal controls over the payroll process. A key element of internal control for payroll is the review of biweekly payroll transactions and the periodic review of personnel files.
Condition – Management discovered after the termination of a former Human Resources employee that there were significant errors in benefits. These were all corrected by year-end, but were not discovered and corrected until after her termination (i.e. Employee Benefit Plan errors, health insurance errors, life insurance errors, etc.). These errors crossed multiple years.
Cause – The HR Director the Organization inherited in the merger with House of Charities in 2021 was not qualified to do her job, but this was not obvious to management until after she left the Organization.
Effect – As a result of this condition, the Organization is exposed to an increased risk that misstatements (whether caused by error or fraud) may occur and not be prevented or detected by management on a timely basis. For example, incorrect costs may be paid due to not properly terminating benefits for former employees or not properly applying pay rate changes, or employees may not be receiving the benefits they are due because new employees were not added properly.
Recommendation – We encourage the Organization’s management to review their processes related to payroll and benefits to ensure the individual responsible for reviewing this information is qualified to perform the function and that the reviews take place timely and are documented appropriately.
Auditee's comments and response – Management agrees with the finding. Management is reviewing and assessing all of the payroll and human resources functions, and HR plans to hire additional staff. They expect to fully implement the new process by July 1, 2024.
Responsible party for corrective action: Laura Straw, Finance Director
Repeat Finding: No