Page 94 - Essentials of Payroll: Management and Accounting

Payr oll Pr ocedur es and Contr ols
Though this type of deduction is needed to offset prior
deductions that may have been too high, it can be abused by
artificially increasing a person’s pay. Consequently, all negative
deductions should be reviewed by a manager.
• Obtain computer-generated exception reports. If the payroll soft-
ware is sufficiently sophisticated, the programming staff can
create exception reports that specify whether payments are
being made to terminated employees, the amount of payments
to new employees, whether negative deductions are being
processed, or when unusually high base pay or overtime
amounts are being processed. Any of these situations may call
for a more detailed review of the flagged items to ensure that
any intentional or unintentional errors will not result in
incorrect payments.
• Issue checks directly to recipients. A common type of fraud is
when the payroll staff either “creates employees” in the payroll
system or carries on the pay of employees who have left the
company, and then pockets the resulting paychecks. This prac-
tice can be stopped by ensuring that every paycheck is handed
to an employee who can prove his or her identity. The only
exception should be those cases when, due to disability or
absence, an employee is unable to collect a check, and instead
gives written authorization for it be to given to someone else,
who brings it to the absent employee.

For companies that have outlying locations for which it is
impossible to physically hand a paycheck to employees, a
reasonable alternative is to have the internal audit staff periodi-
cally travel to these locations with the checks on an unan-
nounced basis and require physical identification of each
recipient before handing over a check.
• Provide lists of paychecks issued to department supervisors. From
time to time, it is quite useful to give supervisors a list of pay-
checks issued to everyone in their departments because they

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