Special Contribution from Weaver |
More than hours and rates — internal controls over payroll
When most administrators think about controls over payroll, they are primarily worried about fraud — that is, paying for time someone didn’t actually work. However, that’s not the only risk: ensuring faculty and staff are paid accurately is just as important. And as important as preventing mistakes is to you, it’s even more important to your employees. Remember, what seems like a small error to you is a big deal to the person whose check it is.
Payroll controls fall into three broad categories: validating inputs, verifying pay calculations and segregating duties. Do you have all of these controls in place at your district?
Validating inputs
District employees — both salaried and hourly — have a variety of different contract terms that affect their pay calculations. Payroll must include processes for confirming variables such as:
- Length of contract (187 days versus 207 days, for example)
- Contract or wage rate
- Agreement of the rate with district’s pay scale
- Hours worked — ensuring that supervisors sign off on time and overtime for hourly employees
- Any leave time used is approved
- Payment of salary over 10 months or 12 months
- Stipends for additional duties
- Deductions and withholding amounts, including taxes, insurance, garnishments for child support or other debts, and paid or unpaid leave
Verifying pay calculations
Utilizing the information from the inputs, there must be procedures in place to verify that pay to each employee is correct. Payroll managers must put controls in place to confirm that:
- Pay calculations, including tax and withholdings are accurate, and appropriately reviewed by someone other than the preparer
- Accrual of leave time is correct
- Costs have been allocated properly by function, particularly when part of an employee’s salary is paid by a grant program
- Amounts from period to period are fairly consistent and any variations have been explained
Segregating duties
Just like any other accounting function, payroll must segregate key duties to provide a layer of protection against errors and fraud. For example:
- The person entering pay rates, stipends and withholding information into the payroll system should not be the same person who performs the payroll calculation
- The person who verifies pay rates and hours worked should not be the same person who signs the checks
- The recording of payments should be segregated from the disbursement of funds and reconciliation of the payroll bank account, just as they are in purchasing
The last word
When an employee leaves, final details must be wrapped up:
- Confirmation that the final paycheck is accurate and contains all final deductions or credits
- Processes to remove the employee from the payroll system
- Coordination with HR and the employee’s supervisor to collect district equipment (technology, uniforms, etc.), remove the employee from health insurance, and deactivate IT access
Verifying timesheets is only the most obvious internal control over payroll. To protect your district’s systems, make sure you also have a variety of processes in place to confirm inputs and outputs, check calculations and separate key responsibilities.
