Finding Text
Condition- One of the City's key controls over payroll is for the Chief Financial Officer (CFO) to review the payroll bank transfer against the payroll register to ensure what was drawn from the bank matches the payroll reports for each pay period and to sign the reports to document this review and approval. During our testing of payroll controls we noted 18 out of 26 pay periods for which there was no signature on the payroll reports documenting this review took place. Additionally, for 30 out of 40 paychecks tested, documentation of proper approval of pay rates could not be located. Finally, for 3 out of 40 paychecks tested, documentation of proper approval of timesheets could not be located.
Effect- Although we did not note any actual discrepancies in payroll batch totals, pay rates or timecard hours, a lack of a review of payroll documentation could result in erroneous or fraudulent payments that are not prevented or detected and corrected on a timely basis. Since this process is also signficant to the single audit major program, this finding is applied to internal control over compliance for the major program, under the Uniform Guidance, as well as internal control over financial reporting in accordance with Government Auditing Standards.
Recommendation- We recommend that the payroll approval process be followed for all pay periods and that contingencies be established to determine a backup reviewer for each payroll control in the event that the primary reviewer is unavailable to review a particular pay period.