20
Indicators
of Payroll
Fraud
Questions should be asked
1 Are personnel records maintained independently of
payroll and timekeeping functions?
2 Is the payroll accounting function independent
of the general ledger function?
Are changes to payroll not made unless the
3 personnel department sends approved notification
directly to the payroll department?
4 Are references and backgrounds checked for
new hires?
Questions should be asked
5 Are all wage rates authorized in writing by a
designated official?
6 Are signed authorizations on file for employees
whose wages are subject to special deductions?
Are bonuses and overtime approved in advance
7 and reviewed for compliance with company
policies?
8 Are sick leave, vacations, and holidays reviewed
for compliance with company policy?
Questions should be asked
9
Are appropriate forms completed and signed by
employees to show authorization for payroll deductions
and withholding exemptions?
Is the payroll periodically checked against the personnel
10 records for terminated employees, fictitious employees,
etc.?
11 Is a time clock used for office employees as well
as factory workers?
If a time clock is used, are timecards (1) punched by
12 employees in the presence of a designated supervisor and
(2) signed by a supervisor at the end of the payroll period?
Questions should be asked
Are timecards and production reports reviewed and
13 compared with payroll distribution reports and production
schedules?
14
Are payroll registers reviewed and approved before disbursements
are made for (1) names of employees, (2) hours worked, (3) wage
rates, (4) deductions, (5) with contracts?
15 Are all employees paid by check out of a separate
bank payroll account?
16 Is the distribution of the payroll rotated periodically
to different employees without prior notice?
Questions should be asked
Do payroll bank account reconciliation procedures include
17 comparing the paid checks to the payroll and scrutinizing
canceled check endorsements?
18 Are the payroll registers reconciled to the
general ledger control accounts?
Are actual payroll amounts reviewed and
19 compared to budgeted amounts, and are variances
analyzed regularly?
Are adequate, detailed records maintained of the entity’s
20 liability for vacation pay and sick pay? Are they reconciled
to the general ledger control accounts periodically?
