In today’s modern business world, security is a high priority and payroll internal controls help you secure your business information and protect confidential employee information. In addition to protecting against data leaks and ensuring that sensitive information remains confidential, it also helps to prevent the possibility of financial fraud. Employees are one of the most important assets of your business and healthy HR practices help impact and ensure your bottom line and budget.
Patriot Software notes, “Payroll internal controls are the procedures your business follows to protect its payroll information. Payroll controls and procedures prevent employees from accessing confidential information. Internal controls also prevent employees from stealing money from your business through overpayments and false time records. In large businesses, payroll internal controls involve dividing payroll tasks among departments and employees. Dividing tasks ensures many people have their eyes on the payroll process, meaning someone has less ability to commit fraud. With your small business, dividing payroll tasks is probably not practical.”
Payroll internal controls best practices for your business
Not matter what size your business, it’s important to pay payroll internal controls. Here are the payroll internal controls best practices your business should know.
1. Change report
A change report runs every payroll cycle can help you identify anything that’s changed since the last payroll run. This is a good way to keep an eye on the goings-on of your HR operations, allowing you to monitor anything different, such as payroll rate changes, addition of employees, or employee bank account changes and to ensure that terminated employees aren’t continuing to be paid after their departure. Not only can this prevent any unauthorized changes, but it also makes it easier to approve changes that have been requested. It’s advisable that this report is run by someone outside of direct HR control, such as the CIO or other executives.
2. Review the payroll
A payroll internal controls best practice is to continue reviewing all payroll registers before and after it’s submitted to anyone running the payroll, particularly 3rd-party payroll company. This process is additional steps to what should be a straightforward payroll process, but this kind of review is necessary as a step to prevent theft, data leaks, and theft.
Kreischer Miller reminds businesses, “Many payroll packages now offer an electronic timekeeping module directly in the payroll system. At the end of each week, supervisors can log into the module and approve employee hours, which are then automatically transferred to the payroll processing module. By eliminating the use of manual time cards, organizations reduce the risk of error through data entry, while also making the payroll cycle more efficient.” Not only does automation make things faster and more efficient, but it also creates a reduced risk of financial errors for businesses.
4. Use access control
Two vital system elements will help safeguard your HR and employee data. Payroll systems should be, whenever possible run electronically. Any physical files that need to be stored should be restricted to those with physical keys or access cards. Use digital checks and direct deposit whenever possible, making sure that check stock is kept in a secure location and regularly inventoried.
5. Create segregation of duties
In some businesses, having different people performing different tasks related to payroll can reduce the risk of too much access. As Kreischer Miller notes, “Sufficiently segregating responsibilities will help to control the risk of unauthorized changes or transactions.” This means that only certain individuals can access the entirety of the payroll system information log, for instance. For some companies, this kind of segregation of work can create too many specialized roles for some department or series of tasks. Other companies aren’t large enough to have that many employees involved in the first place. For those who are, it might make sense to divide responsibilities this way
- the processing of payroll running within the payroll systems
- access and input into the general finance ledger
- the maintenance and management of personnel information files
- approval of time reporting
- the distribution of payroll checks
Protecting your payroll is part of protecting your business. Establish payroll internal best practices keeps your finances in order and keeping employees from being able to take advantage of your business. Ensuring that all your HR employees are trained in the correct and accurate processes is essential in maintain safety in your HR and payroll operations.