Tom Franz, Integrity DataThe largest expense for most employers are the wages and benefits paid to its employees. As such, there are many ways in which employers can expose themselves to risk. Either intentionally or through a lack of awareness, staff members within the payroll department often times cost their employers large amounts of money. Effective internal controls can significantly reduce the amount of exposure employers have to these areas. Documentation of these internal controls is critical to ensure they are followed on a consistent basis.

Some simple activities that can greatly reduce intentional fraud include separation of duties, rotating job assignments and physical payouts. The separation of duties is important even within small payroll departments. No task should be relegated to a single individual. Payroll departments should periodically switch up the responsibilities of the various staff members. This can be very helpful from a cross-training perspective for unplanned absences as well. In addition, having unannounced physical payouts that require all employees to display a photo ID prior to receiving their payroll check can ensure that phantom employees are not being paid within the organization.

Staying up to date on regulatory and administrative changes is critical to organizations to ensure they are compliant with ongoing changes that affect payroll processing. These changes have become highly visible in relation to the Affordable Care Act within the last couple years. Employers should ensure they have a good resource to rely upon for staying abreast of these types of changes and identifying how they might affect their business operations. Several avenues exist for payroll managers to “stay in the know” in these critical areas. The American Payroll Association (APA) and the Society for Human Resource Management (SHRM) have a great collection of information that can be beneficial to employers. Regional meetings and conferences provided by these organizations can be helpful as well. For employers that utilize Dynamics GP Payroll and Human Resource functionality, Integrity Data has several avenues that are utilized for sharing key information. These include Twitter (@IntegrityData), LinkedIn, Facebook and the blogs on our website.

Ensuring that your processes are effectively documented will greatly improve adoption and ongoing adherence to your company policies. This documentation should include policies, procedures, system software information, job descriptions and employee master file descriptions. The documentation can be referenced by new additions to your payroll staff as well as by existing employees that are filling in for absent employees and when rotating job assignments.

If you haven’t implemented and documented your internal controls, I would recommend you take the time to write and maintain your documentation. It can be time consuming, but the benefits you would receive from these internal controls can greatly outweigh the work effort required to implement them. Mitigating exposure to IRS penalties and employee fraudulent activities should be a top of mind issue for payroll managers. Internal controls are the best first line of defense against these costly issues.

Tom Franz, CPP
Product Manager at Integrity Data, Inc.
Follow @TomFranz_ on Twitter