rr ee vv ii ee ww oo ff tt hh e e pp aa yy rr oo ll ll pp...
Post on 14-Jul-2020
7 Views
Preview:
TRANSCRIPT
R Re ev vi ie ew w o of f t th he e P Pa ay yr ro ol ll l P Pr ro oc ce es ss s J Ju ul ly y 1 1, , 2 20 00 06 6 – – M Ma ay y 3 31 1, , 2 20 00 09 9
A Au ud di it t A As ss si ig gn nm me en nt t N No o. .: : A A 3 31 10 01 1 0 09 9 0 00 01 1 J Ju un ne e 2 22 2, , 2 20 00 09 9
S Sc ch ho oo ol l B Bo oa ar rd d o of f t th he e C Ci i t ty y o of f R Ri i c ch hm mo on nd d, , V Vi ir rg gi in ni ia a R Ri ic ch hm mo on nd d P Pu ub b l l i ic c S Sc ch ho oo ol ls s I In nt te er rn na al l A Au ud d i i t t S Se er rv v i ic ce es s
301 North Ninth Street Richmond, VA 232191927 Telephone: (804) 7807628 Fax: (804) 7807099 Email: djohns@richmond.k12.va.us
Memorandum Internal Audit Services
TO: The Honorable Members of the School Board of the City of Richmond, Virginia
Dr. Yvonne Brandon Superintendent
FROM: Debora R. Johns, CGAP Chief Auditor
DATE: June 22, 2009
SUBJECT: Audit Report on the Review of the Payroll Process Audit Assignment No.: A3101090001
As a part of our approved Fiscal Year 2009 audit plan, Internal Audit Services completed the audit work on the payroll process. Our work was performed in accordance with the International Standards for the Professional Practice of Internal Auditing. The audit covered the period of July 1, 2006 through May 31, 2009. The purpose of our audit was, but is not limited to, the following objectives: to determine whether employees are accurately paid in accordance with established policies, rules, and regulations; to determine that the payroll process is comparable to that of the surrounding school districts; to determine if adequate segregation of duties over the payroll process exists; to ensure individuals on the payroll were bona fide employees; and to ensure access to the employees’ personnel and payroll records were adequately restricted and secured.
We commend the payroll function for paying employees on time, for placing payroll forms on Infonet (intranet website) and for providing basic training at the school district’s Leadership Conference. During our audit, we found no fictitious employees on the payroll. Although our audit procedures indicate the items mentioned above were properly handled, there are areas that need improvement such as stronger management is needed of the payroll function, the payroll processing manual needs to be updated, supervisory controls are not in place to ensure all leave taken is recorded and best practices can be implemented to assist with improving the payroll process.
Although we exercised due professional care in the performance of this audit, this should not be construed to mean that unreported noncompliance or irregularities do not exist. The deterrence of fraud is the responsibility of management. Audit procedures alone, even when carried out with professional care, do not guarantee that fraud will be detected. The purpose of the audit report is to furnish management independent objective analyses, recommendations, counsel, and information concerning the activities reviewed. The audit report is a tool to help management identify weaknesses and implement specific improvements.
We would like to acknowledge the cooperation extended to us during the performance of this audit by employees of the Payroll function.
If you have any questions concerning this report, please contact me. My telephone number and email address are shown below.
TABLE OF CONTENTS
Pages
Audit Report in Brief……………………………………………………………………….......15
Background………...………………………………………………………………………….....6
Objectives & Scope and Methodology………….…………………………………………......78
Audit Findings and Conclusions Stronger Management is Needed for Payroll Function……………………………....910 Redistribute the Workload and Eliminate Two Positions ……..…………………...1012 Update Payroll Processing Manual and Incorporate Additional Policies and
Procedures …………………………..……………………………………...1213 Ensure All Support Documentation for Payroll is Maintained
New Hires…………………..…………………………………………..………14 Terminations……………………………………………………………… ..1516
Implement Best Practices to Improve Process…………………………………..….1719 Pay Employees without Direct Deposit with Payroll Cards and Implement Direct
Deposit for All Employees…………………………………………………1920 Develop a Better System for Collecting Accounts Receivables Due From
Employees for Overpayments………………………………………………2122 Automate Garnishment Transactions and Charge a Processing Fee………………..2223 Employee Leave Taken but Not Recorded in System and Payroll Verifications
are Not Submitted Timely…………………………………………………..2324 Ensure Employees Follow Procedure on Recording Compensatory Time to
System………………………………………………………………………2526 Implement Changes for Manual Checks……………………………………...….....2628
Other Matters to Report………………………………………………………………………..29
Acknowledgements………………………................................................................................30
AUDIT REPORT IN BRIEF
Audit Review of Payroll Process
Scope X FinancialRelated Computer/EDP X Operational/Program Results Special Project
Team Members: Debora Johns, CGAP, Chief Auditor, and Yolanda Tennessee, Auditor
Objectives: Ø To determine if Richmond Public Schools (RPS) payroll process is comparable to surrounding
jurisdictions. Ø To determine if the payroll staff is complying with system policies and procedures and
federal/state laws when authorizing payment. Ø To ensure that there is adequate segregation of duties over the payroll process in order to
minimize errors in payroll transactions. Ø To ensure that all new hires were legitimate, properly authorized and accurately recorded. Ø To ensure all current employees on payroll are bona fide. Ø To ensure terminated employees were properly recorded and processed on payroll and no longer
remain. Ø To ensure authority for all pay entitlement is clearly defined and effectively exercised. Ø To ensure that all contract changes are correct on the system. Ø To ensure that all salary deductions are being properly authorized and calculated accurately. Ø To ensure that employment taxes, tax and nontax reporting requirements are in compliance with
federal/state laws. Ø To ensure that the payroll checks and payroll documentation are properly secured and access
restricted to the appropriate personnel. Ø To determine if employees receive training on system usage as appropriate by the department.
Audit Findings:
Ø Due to the high risk involved with payroll, stronger management is needed for the payroll
function. With the limited resources that exist for the organization, it is imperative that
managers ensure that all funds are accounted for and managed in the most efficient way
possible.
Ø In 199596 the payroll section had 9 employees. Since that time the process has improved
and a lot of changes have been made which decreased the workload. As of FY 2009, there
are 9 employees assigned to work with the payroll process. The current staffing level does
not reflect the decreased workload.
2 AUDIT REPORT IN BRIEF
(Continued)
Ø The Payroll Processing Manual has not been updated since fiscal year 199596. The manual
lacks policies and procedures on key aspects of the payroll function.
Ø All support documentation for payroll transactions is not maintained in the file for new hires
and terminated employees.
Ø We reviewed the book “Best Practices for Payroll” by Steven Bragg, and we’ve identified the
best practices that may assist with improving the payroll process.
Ø As of May 29, 2009 we have approximately 1,173 employees (23%) who do not have direct
deposit.
Ø The Supervisor of Payroll does not have an adequate system for collecting accounts
receivables due from salary overpayments. One of the largest overpayments in the amount of
$10,050 was set up with a payment agreement of $50 per pay period or 201 payments.
Ø For garnishments, payroll manually calculates an employee’s disposable income, determines
the appropriate deductible amount in light of any other garnishment orders applicable to the
same employee, enters deduction codes in the payroll system, pays the garnishing entity and
monitors when the garnishment will be completed. Payroll does not charge the employee a
processing fee for the garnishment. We have processed approximately 331 garnishments
within the audit period. The department is missing the opportunity of collecting revenue of at
least $3,310 ($10 for each garnishment summons received).
Ø There is a lack of supervisory control when it comes to ensuring that all leave taken by
employees is being recorded in the system. There is also a problem with the departments not
submitting their payroll in a timely manner. We have a lot of departments that repeatedly
appear on the semimonthly notice sent out by Payroll.
Ø Compensatory time earned and taken is not always being submitted to Payroll and logged on
the system as stated in Administrative Procedure #7.04 Overtime and Compensatory Time.
Ø The Supervisor of Payroll fails to ensure that the policy on manual checks is being followed.
The number of manual checks has increased over the years from 192 in FY 2007 to 626 in
FY 2009. Also, the manual check bank account is not reconciled.
3 AUDIT REPORT IN BRIEF
(Continued)
Audit Recommendations:
Based on our findings, we made the following recommendations:
Ø The Director of Finance should ensure that the Supervisor of Payroll is properly trained
and is creating additional management reports to better assist with the identification of
errors and questionable trends that may occur with each payroll.
Ø The Director of Finance should develop performance measures for the payroll process to
evaluate the staff’s performance on a 6 month basis.
Ø The Director of Finance should redistribute the work to allow for more work to be
completed by the employees eliminating a lot of the down time. The redistribution of
work will show that based on the amount of work coming in payroll two positions may be
eliminated. The elimination of 2 positions would generate a cost savings between
$48,942.71 and $78,412.46.
Ø The Supervisor of Payroll needs to update the payroll processing manual to reflect
current operations and to include policies and procedures on key aspects of payroll.
Ø The Supervisor of Payroll must ensure that each staff member has a copy of the payroll
processing manual and review the duties of the staff involved to ensure the tasks are
being performed properly. Ongoing training for the payroll staff should be provided to
help ensure that proper payroll procedures are followed and payroll documents are
adequately maintained.
Ø The Supervisor of Payroll needs to develop written guidelines on what documentation
should be maintained in the payroll files to ensure consistency and include this
information in the Payroll Processing Manual.
Ø The Director of Finance and Supervisor of Payroll should consider the identified best
practices and determine whether these payroll practices will help to improve the payroll
process.
4 AUDIT REPORT IN BRIEF
(Continued)
Ø The Supervisor of Payroll needs to develop a plan of action and implement payroll cards
for all employees who normally receive a paycheck. These employees’ wages will be
available on the payroll card for usage each payday.
Ø The Superintendent should submit to the School Board for approval the consideration of
implementing a direct deposit policy which states all employees should have direct
deposit. The benefits of the policy would include saving time and money by eliminating
the manual process, reducing costs associated with printing checks, reducing
irregularities and human errors and having the funds deposited to be timely and readily
available.
Ø The Supervisor of Payroll needs to work together with the Coordinator of Administrative
Services to take a more aggressive approach in collecting the amount currently due for
overpayments. The Supervisor of Payroll should contact the School Board Attorney to
obtain legal assistance to collect the overpayments.
Ø The Supervisor of Payroll needs to develop a plan of action to automate garnishment
transactions. This will eliminate a lot of the manual time utilized for handling the
garnishments and also will provide a means for tracking and properly monitoring the
garnishment information.
Ø The Superintendent should submit to the School Board for approval the consideration of
implementing charging a $10 processing fee for all garnishment summons received.
Ø The Supervisor of Payroll and Department of Human Resources needs to develop
procedures on the monitoring of employee absences and distribute these procedures to the
department and school managers.
Ø All departments should review recorded absences for their employees to ensure accuracy.
Ø The Supervisor of Payroll and the Director of Human Resources needs to reinforce to all
current employees during training, the policy on compensatory time to ensure that all
time accrued is recorded on the system and the procedures are followed as written in the
Department of Human Resources Administrative Procedures #7.04.
Ø The Supervisor of Payroll should utilize the established procedure for
supplemental/manual checks. Manual checks should only be written in extreme
5 AUDIT REPORT IN BRIEF
(Continued)
emergency situations otherwise an employee who has not been paid can be processed on
a supplemental payroll. By enforcing the procedure that is already in place this should
cut down on the number of manual checks being processed.
Ø The Supervisor of Payroll needs to ensure that all manual checks are entered into the
financial system and should begin the process of entering all previously written checks.
We recommend that the manual check bank account is reconciled and that it is done on a
monthly basis. The payroll staff must provide the complete and accurate information to
the General Ledger section.
Management Response:
The Director of Finance and Supervisor of Payroll generally agreed with the audit findings
and recommendations with the exception of one. The Director of Finance and Supervisor of
Payroll has taken steps to correct many of the issues identified in the report and to enhance
the payroll process.
This space left intentionally blank.
Review of Payroll Process 6
Background
Richmond Public Schools (RPS) is a serviceoriented organization with over 82% of all
resources going toward salaries and benefits. Payroll represents the largest expense incurred by
Richmond Public Schools. For FY 2009, RPS budgeted $159,414,195.00 for salaries and wages
and $60,421,873.00 for employee benefits.
Salaries & Benefits
Other Expenditures
During FY 2009, Richmond Public Schools paid approximately 5,035 employees through
general and special revenue funds. Employees are paid on a semimonthly basis. Contracted
employees receive a gross pay equal 1/20 th or 1/24 th of their contracted salary in twenty or
twentyfour checks depending on their contract length and position. Temporary hourly
employees, such as substitutes, receive a gross pay equal the number of hours worked in a given
pay period.
The payroll processing system is a combination of efforts from the Human Resources
Department and Payroll function within the Finance Department. The Human Resources
Department is responsible for the maintenance of personnel records, the set up of employees in
the system, pay rates, job assignments, etc. The Payroll staff is responsible for processing the
data entered for newly hired or terminated employees and changing existing employee data that
may affect pay. Other duties include processing payroll, running reports, sorting checks,
distributing checks to the individual departments and paying overtime and other payments when
warranted. In the payroll function there are 9 FTEs, including 2 temporary employees.
Review of Payroll Process 7
Objectives
The audit focuses on the financial related and operational issues of the payroll process. The
objectives of this audit were:
Ø To determine if RPS payroll process is comparable to surrounding jurisdictions. Ø To determine if the payroll staff is complying with system policies and procedures
and federal/state laws when authorizing payment to contracted and hourly employees. Ø To ensure that there is adequate segregation of duties over the payroll process in order
to minimize errors in payroll transactions and to minimize business risks. Ø To ensure that all new hires for the company were legitimate, properly authorized and
accurately and completely recorded in a timely manner. Ø To ensure that all current employees already on the payroll are bona fide. Ø To ensure that terminated employees were properly recorded and processed on the
payroll system and to ensure that they no longer remain. Ø To ensure that authority for all pay entitlement is clearly defined and effectively
exercised and determine if contract changes are correctly computed, verified and loaded to the payroll system.
Ø To ensure that all employee salary deductions are being properly authorized, accurately calculated and completely processed in a timely manner.
Ø To ensure that employment taxes, tax and nontax reporting requirements are in compliance with applicable federal/state laws.
Ø To ensure that the payroll checks and payroll documentation are properly secured and access restricted to the appropriate personnel and that all pertinent information concerning contracted and hourly employees are being properly kept up to date and maintained to determine if documentation is properly distributed for all payroll transactions in a timely manner.
Ø To determine if employees received training on system usage as appropriate by the department.
Ø To make recommendations as deemed appropriate.
Scope and Methodology
The audit period was July 1, 2006 through May 31, 2009. The audit was to consist of, but not
limited to the following:
Ø Examine the financial controls in place for the payroll process to identify whether or not they exist and if so to determine if they are strong or weak.
Ø Provide an internal control narrative. Ø Conduct a transaction walkthrough. Ø Understand whether our payroll process is consistent with that of other surrounding
districts.
Review of Payroll Process 8
Ø Evaluate the adequacy of internal controls and conduct various audit tests to provide reasonable assurance of detecting any risk of fraud or illegal acts.
Our review was conducted, in accordance with the International Standards for the Professional
Practice of Internal Auditing. Those standards require that we plan and perform the audit to
afford a reasonable basis for our judgments and conclusions regarding the organization, program,
activity or functions under audit. An audit includes assessments of applicable internal controls
and compliance with requirements of laws and regulations when necessary to satisfy the audit
objectives. We believe that our audit provides a reasonable basis for our conclusions. Our work
focused on specific areas that have potential for abuse and misuse of public resources and may
be summarized as follows:
Ø Interviewed several employees involved with the payroll process.
Ø Reviewed School Board Policies.
Ø Reviewed best practices to determine if there are other ways to improve payroll process.
Ø Conducted surveys of surrounding districts to determine if their payroll process is
comparable to our payroll process.
Ø Conducted surveys to gain understanding and knowledge of payroll policies and
procedures.
Ø Performed audit procedures to determine whether the staff handling the payroll process
complied with policies and procedures.
Ø Reviewed documents related to handling and processing the payroll.
Ø Ran queries to obtain financial data associated with payroll.
Ø Reviewed and analyzed supporting documentation for financial transactions.
Ø Evaluated the internal controls established by management. We focused on specific areas
that have potential for abuse and misuse of public resources.
Ø Performed other work considered necessary in the circumstances.
Review of Payroll Process 9
Audit Findings and Conclusions
Stronger Management is Needed for Payroll Function
Due to the high risk involved with payroll, stronger management is needed for the payroll
function. With the limited resources that exist for the organization, it is imperative that
managers ensure that all funds are accounted for and managed in the most efficient way
possible. The Supervisor of Payroll does not employ strategic skills in analyzing the payroll
process.
The Supervisor of Payroll has a processing knowledge regarding payroll. In addition, the
request from executive management to pay employees outside of the normal pay cycle is
taken as high priority and is processed contrary to what is documented in policies and
procedures. A stepbystep plan of action of the necessary steps to reach the function’s
objectives is not present. There are a number of reports that the Supervisor should create to
find discrepancies in payroll. Payroll data should be analyzed prior to a payroll run and also
after the payroll run is complete. Additional training, cross training and the necessary
resources are not provided to the staff to accomplish their assigned duties. Controls are not
in place to evaluate the staff’s performance and no adjustment is made to processes that may
need improvement. The staff level should be reviewed to determine the appropriateness in
the number of employees assigned to handle the payroll process.
Due to the lack of knowledge and understanding, the staff cannot accomplish their job as
well as it should be. Employees are not consistent in the processing of transactions. There
can be a lack of staff focus and sense of direction, which in turn leads to much
dissatisfaction. There is a lot of idle time among the payroll staff. The risk of potential
payroll errors is high. There are missed opportunities for cost savings.
Review of Payroll Process 10
Recommendations
1) The Director of Finance should ensure that the Supervisor of Payroll is properly
trained and that additional management reports are created to better assist with the
identification of errors and questionable trends that may occur with each payroll.
2) The Director of Finance should develop performance measures for the payroll process
to evaluate the staff’s performance on a 6 month basis.
Management Response
Concur: The Director of Finance will ensure that the Supervisor of Payroll is properly
trained and that additional management reports are created to better assist with the
analysis of payroll errors or trends that may occur with each payroll. The Director of
Finance currently uses workload indicators and departmental Balanced Score Card to
measure staff performance. Beginning with fiscal year 2009, we are also using The
Council of the Great City Schools Key Performance Indicators to measure the staff’s
performance.
Target Date: September 2009 and ongoing
Redistribute the Workload and Eliminate Two Positions
We did a comparative analysis survey of Richmond Public Schools’ payroll process to that of
the other surrounding districts. This was done to determine if RPS payroll guidelines were
similar to those of other school districts. We found one district, Norfolk Public Schools
(NPS) that was comparable to ours for the benefit of showing the number of employees.
NPS processed approximately 187,475 checks in 2008 and had a total of 7 employees.
According to our Supervisor of Payroll, we processed approximately 127,923 in 2008 and we
currently have 9 employees. Over the years the payroll process has improved however the
staffing has not changed much. We did a comparison of the payroll section from FY 1996 to
that of FY 2009:
Review of Payroll Process 11
Number of Payroll Employees Fiscal Year 19951996
Number of Payroll Employees Fiscal Year 20082009
Supervisor of Payroll Supervisor of Payroll Accountant for Payroll Operations Assistant Supervisor of Payroll Operations
Lead Accountant for Payroll Accounting & Reporting
Lead Accountant for Payroll Accounting & Reporting
Senior Account Technician for Operations (4) Accountant for Operations (3) Senior Account Technician for Benefits
Accounting Account Technician
Data Entry Technician (1/2 Worked between Payroll and Accounts Payable)
Temporary Employees (2)
Temporary Employees (There were 2, but only worked part time so we counted as 1)
Total Number of Employees = 9 1/2 Total Number of Employees = 9
The following items have been incorporated to improve the process such as, automating
timekeeping which was manually done before, absence reporting is now done through the
phone and on the web, and the payroll checks are sealed instead of being stuffed in
envelopes. The data entry technician position association with Payroll was eliminated and
the current staffing level does not reflect the decreased workload.
During our audit we observed that the payroll employees have a lot of down time due to the
small amount of work coming into the department. The work is distributed by social security
numbers which allows for one employee to have more work than others and allows for a lot
of down time. Most of the busy work is done days before payroll is processed and the day
after the payroll run. Four of the employees are assigned to keying the paperwork received
from the school and/or departments. One employee is responsible for calculating all
deductions, inputting the information associated with deductions and creating the necessary
reports. This task is not performed until after the payroll has been processed. The temporary
employees are responsible for keying all hours associated with maintenance which is being
used for more than just overtime, but also for hours not reported in the time period accrued.
They also key VHSL, stipends, departmental invoices, and perform all of the filing of the
payroll files.
Review of Payroll Process 12
The payroll function only processes payroll. The accountants’ work is based on social
security numbers instead of the actual amount of work coming into the department. Unless
there is a change in position, or an employee leaves or goes out of pay, there is no actual
work associated with most employees. There is a lack of supervision for payroll to be
properly managed. There is not enough work coming into the department to justify having a
total of 9 employees.
Recommendation
3) The Director of Finance should redistribute the work to allow for more work to be
completed by the employees eliminating a lot of the down time. We believe the
redistribution of work will show that based on the amount of work coming into
payroll two positions may be eliminated. The elimination of 2 positions would
generate a cost savings between $48,942.71 and $78,412.46.
Management Response
We do not concur with the recommendation to eliminate two positions. In 1996 there
were eight full time payroll employees and three part time data entry positions. We have
since eliminated one full time position and one part time data entry position. The city
plans to add staff for the implementation of the new ERP system and we cannot afford to
eliminate staff. We will reevaluate our staffing levels during the budget process. The
Supervisor of Payroll redistributed work in the last year to the Sr. Account Technician,
Accountants and Benefits Accountant to help facilitate crosstraining within the section.
Social Security Numbers are currently redistributed annually among the staff to ensure
equal distribution of workloads to staff. We will distribute work by location instead of by
social security number as recommended in the MGT study.
Target Date: September 2009
Update Payroll Processing Manual & Include Additional Policies and Procedures
The Supervisor of Payroll has a 199596 payroll processing manual which documents the
instructions on how to process payroll. There are policies and procedures in the payroll
processing manual on time sheet processing; transportation time entry; proforma payroll
Review of Payroll Process 13
processing; early retirement payments; direct deposit transmittal and fund transfer; check
distribution; supplemental and manual checks; employee contract assignment; check voiding;
deduction and the priorities; garnishments; VRS and overpayments.
Some of the procedures need to be updated with current information. However, there is no
guidance or detailed explanation on what forms should be used, from whom or when the
forms should be received for such things as new hires and terminations nor who should
approve certain transactions. There is no information on how to account for sick, vacation
and bereavement leave, compensatory time, pay rate changes, etc. Also, there are no
procedures to show what type of documentation should be maintained by payroll in
employees’ files. Management does not have documented standards as to how business is to
be conducted, reducing the ability to hold individuals accountable. Also, there is a Financial
Procedures Manual that should also be updated to reflect the new policies and procedures to
assist managers with the proper guidelines for handling payroll items.
The Supervisor of Payroll has not reviewed the manual to determine if it should be updated
and/or whether additional procedures should be added. Payroll staff does know how to
perform certain tasks however consistency does not exist among the staff. This is a
significant weakness resulting in inefficient operations and increases the risk of errors and/or
irregularities.
Recommendations
4) The Supervisor of Payroll needs to update the payroll processing manual to reflect
current operations and to include policies and procedures on key aspects of payroll.
5) The Supervisor of Payroll must ensure that each staff member has a copy of the
payroll processing manual and review the duties of the staff involved to ensure the
tasks are being performed properly. The Supervisor of Payroll should have each staff
member sign a form acknowledging they received and read the manual. The signed
document will be placed in their employee file.
Review of Payroll Process 14
6) The Supervisor of Payroll should provide ongoing training for the payroll staff to help
ensure that proper payroll procedures are followed and payroll documents are
adequately maintained.
Management Response
Concur: The Supervisor of Payroll will ensure that each staff member has a copy of the
payroll processing manual, will review the duties of the staff involved to ensure the tasks
are being performed properly and will also make sure the manual reflects the current
policies. The Supervisor of Payroll will ensure that staff receives proper training.
Target Date: September 2009
Ensure All Support Documentation for Payroll is Maintained
We reviewed the payroll files for new hires and terminated employees to document if all
necessary information is available for transactions processed. Payroll sometimes processes
what has been entered prior to receiving the actual documents from Human Resources. We
identified the following:
New Hires
We reviewed a sample of new hires to ensure they were properly set up and the files in the
employees’ folder are adequate. The following criteria were tested based on the review of an
employee’s file with this documentation included:
• A notice of appointment form is present in the employee’s file.
• The notice of appointment form has a receipt date stamped on it.
• Paperwork is submitted by the Human Resources Department to the Finance
Department timely.
• All documents (social security card, photo identification card, W4 form, etc) are in the
employee file.
• Notice of appointment is approved by the Director of Human Resources or other
management.
Review of Payroll Process 15
• Employee is set up on the AS400.
• The contract amount on the AS400 matches the amount on the notice of appointment
form.
We reviewed 30 employee files and noted the following deficiencies:
• One employee did not have a payroll file therefore, we were only able to review 29
employee files (Payroll)
• 4/29 (14%) files did not have a notice of appointment form to support the new hire
(Payroll)
• 28/29 (97%) notice of appointment forms were not approved by management, but by
the coordinator who created the form or by the principal (HRD)
• 10/29 (34%) forms did not have a receipt date stamped on them (Payroll)
• 8/29 (28%) of employees’ paperwork were not submitted timely (HRD)
• 8/29 (28%) employees’ files did not have a copy of the employee’s social security
card or photo identification card (Payroll)
• 6/29 (21%) employees’ amount listed on the notice of appointment did not match
what is listed on the system but did not result in overpayment of employees (HRD)
Terminations
We reviewed a sample of terminated employees to ensure they were properly processed and removed
from the system. The following criteria were tested based on review of an employee’s file with this
documentation included:
• A notice of personnel change form is present in the employee’s file.
• The notice of personnel change form has a receipt date stamped on it.
• Paperwork is submitted by the Human Resource Department to the Finance
Department timely.
• The final salary/payout amount is properly calculated.
• The notice of personnel change form is approved by the Director of Human
Resources.
Review of Payroll Process 16
• The termination date on the AS400 should be the same date listed on the notice of
personnel change form in the employee’s file.
• Employee’s final salary/payout is received in a timely manner.
• Employees should not receive subsequent payments after their
termination/resignation date other than final salary/payout amount.
We reviewed 49 employee files and noted the following deficiencies:
• In reviewing assignment screens overall it was noticed that payroll does not always
go in and adjust the contract amount screen so that all balances are zero once a person
is terminated (Payroll)
• 6/49 (12%) did not have a personnel change form in the file to support the
termination. Although the file was not in the payroll folder, I was able to find some
of the forms on the OnBase system (Payroll)
• 19/49 (39%) change of personnel forms were not approved by management, but by
the coordinator who created the form (HRD)
• 16/49 (33%) of the forms did not have a receipt date stamped on the forms (Payroll)
• 15/49 (31%) of employees’ paperwork was not submitted timely (HRD)
• 18/49 (37%) employees’ termination date online was not the same date as listed in the
personnel file but did not result in overpayment of employees (HRD)
• 11/49 (22%) employees did not receive their final salary/payout in a timely manner
(Payroll)
Recommendation
7) The Supervisor of Payroll should work with the Department of Human Resources to
develop written guidelines and a checklist on what documentation should be
maintained to ensure consistency throughout the files and include this information in
the Payroll Processing Manual.
Review of Payroll Process 17
Management Response
Concur: Payroll Supervisor will work with Human Resources to develop written
guidelines on what documentation should be maintained to ensure consistency throughout
the files and include this information in the Payroll Processing Manual.
Target Date: September 2009
Implement Best Practices to Improve the Payroll Process
We commend the Payroll section on implementing the following best practices to improve
the payroll process:
Ø Installing a webbased timekeeping system
Ø Posting forms on Infonet Ø Using automated sealers for paychecks
Ø Issuing activity calendars to all timekeepers Ø Creating a yearend processing checklist
Ø Creating a backup system for payroll records Ø Isolating access to the payroll check printing capability
Ø Initiating direct deposit prenotifications
We identified additional best practices that could also assist with improving the payroll
process:
Ø Issue Electronic W2 Forms to Employees: The furnisher may provide payee
statements electronically instead of on paper if the requirements specified in the
instructions are satisfied.
Ø Stop Delivering Checks to Employees at the Office: A simple way to eliminate the
delivery of checks by hand and convince employees to switch to direct deposit is to
mail checks to their home on payday. By doing so, the payroll staff is removed
completely from the check delivery business.
Ø Install Automated Time Sheet Reminders Prior to Payroll: The payroll staff may spend
a considerable amount of time reminding employees to complete their time sheets, so
they can be paid on time. An email can be created prior to each payroll run to remind
Review of Payroll Process 18
timekeepers about when payroll is due. It will reduce the amount of followup contacts
that the payroll staff must make.
Ø Implement Self Service: An upload of a variety of employeecentric documents, such as
the employee manual, company phone directory, payroll forms and new releases can be
done. In addition to these basic functions, the site can also allow employees to access
their pay statements and W2 forms, view their earnings history, check their remaining
vacation time, see performance reviews and verify their benefit elections.
Ø Create Necessary Standard Error Checking Reports: Reports should be created and
errors should be identified so that a formal system for addressing the issues can be
developed and the appropriate controls can be implemented to reduce the incidence. It
is also useful to track error types on a trend line, to see which errors keep recurring.
Ø Review Payroll Trends after Each Pay Run: An added benefit is that the payroll
manager can notify management of any reasons for unusual payrelated variances on a
proactive basis, rather than waiting for someone to ask questions at a later date.
Ø Verify All Amounts Owed by Employees at Termination: The best way to ensure that
employees pay for any owed amounts at the point of termination is to maintain a
checklist of potential repayment items.
Ø Verify that Year End Paid Leave Balances are Properly Accrued and Carried Forward
Properly: As soon as possible after yearend, the payroll staff should verify on a spot
check basis that employee vacation balances have been rolled forward into the next
year correctly. This review cannot wait, because employees are likely to spot errors
very early in the year.
The process has never been reviewed or compared to other districts to identify areas for
improvement. The implementation of best practices allows for the organization to have more
efficient operations in Payroll. The costs incurred with printing the W2 forms is $17,000 for
the audit period and the cost associated with the delivery of checks is minimal.
Review of Payroll Process 19
Recommendation
8) The Director of Finance and Supervisor of Payroll should consider the identified best
practices and determine whether these payroll practices will help to improve the
payroll process.
Management Response
Concur: Director of Finance and Supervisor of Payroll will review best practices in this
report and evaluate them for implementation along with the ICTS department.
Target Date: February 2010
Pay Employees without Direct Deposit with Payroll Cards and Implement a Direct
Deposit Policy for All Employees
The Code of Virginia 40.129 states, “Payment of wages or salaries shall be (i) in lawful
money of the United States, (ii) by check payable at face value upon demand in lawful
money of the Unite States, (iii) by electronic automatic fund transfer in lawful money of the
United States into an account in the name of the employee at a financial institution,
designated by the employee, or (iv) by credit to a prepaid debit card or card account from
which the employee is able to withdraw or transfer funds with full disclosure by the
employer of any applicable fees and affirmative consent thereto by the employee.
Failure of the employee to designate a financial institution or consent to payment by credit to
a prepaid debit card or card account under clause (iii) or clause (iv) shall require payment of
wages and salaries to be made in accordance with clause (i) or clause (ii) of this subsection.
However, payment may be under clause (iv) to an employee who has not affirmatively
consented thereto if (a) payment cannot be made under clause (iii) because the employee has
failed to designate a financial institution and (b) the employee is employed at any facility
where the operation of amusement devices is authorized pursuant to a certificate of
inspection and any regulations promulgated thereunder.”
Review of Payroll Process 20
During our audit, we noted that approximately 77% (3,862) of RPS employees utilize direct
deposit for their earnings. As of May 29, 2009 we have approximately 1,173 employees
(23%) who do not have direct deposit. Direct deposit and the benefits of having it is not
being aggressively marketed to employees. The costs incurred associated to printing checks
for the audit period was $15,641.05.
Recommendations
9) The Supervisor of Payroll should develop a plan of action and implement payroll
cards for all employees who normally receive a paycheck. These employees’ wages
will be available on the payroll card for usage each payday. The benefits of
employees using payroll cards is that it reduces or eliminates check cashing fees, it
reduces the need to carry a lot of cash, it offers the ability to make purchases using
credit card networks, it offers 24 hour access to funds via ATM’s with no need to
wait in lines, it makes money transfers more available, and provides a pseudo bank
account (funds do not need to be withdrawn entirely as with using a check casher).
10) The Superintendent should submit to the School Board for approval the consideration
of implementing a policy to include that all employees should have direct deposit.
The benefits of the policy would include saving time and money by eliminating the
manual process, reducing costs associated with printing checks and reducing
irregularities and human errors and having the funds deposited would be timely and
readily available.
Management Response
Concur: The Supervisor of Payroll will work with ICTS department to determine
feasibility payroll cards to replace paper checks.
Target Date: May 2010
Review of Payroll Process 21
Develop a Better System for Collecting Accounts Receivables for Overpayments
Each payroll accountant is responsible for keeping track of the collections of overpayments
for employees assigned to them. The Lead Accountant keeps track of all the high dollar
overpayments and maintains this information in an Excel spreadsheet. There is a section in
the AS400 where the temporary docks for all of these overpayments are maintained. One of
the large overpayments in the amount of $10,050 was set up with a payment agreement of
$50 per pay period or 201 payments. It will take the employee 8.375 years to repay the
overpayment. This employee was overpaid due to hours being reported as worked although
the employee was on educational leave. If an employee leaves the system no attempt is made
to collect on the money due from overpayments. The information continues to remain in the
system in case the person returns to work for the school system again in which the dock will
pick up from where it left off.
About 42% (8 of 19) of the overpayments is the result of the employees being set up by
Human Resources with the wrong salary amount or hourly rate. The remaining
overpayments is due to employees being paid for work not done, continuing to be paid after
resignations, a pay adjustment paid out incorrectly or the employee just wasn’t due to be paid
the money. The total amount that was due from the employees that are currently being
tracked was $50,356.96 of which $14,433.31 has been collected. As of May 31, 2009 the
total amount that is still due for overpayments is $35, 923.65.
There are 4 employees who were overpaid in 2007 and Payroll has not been able to collect
from them. The amount associated with these 4 employees is $1,710.64. Based on some of
the repayment agreements in place, the school system could end up with a large loss in
revenue in the event that some of the employees terminate their employment with RPS.
Recommendation
11) The Supervisor of Payroll and Coordinator of Administrative Services should take a
more aggressive approach in collecting the amount currently due for overpayments.
Review of Payroll Process 22
The Supervisor of Payroll should contact the School Board Attorney to obtain legal
assistance to collect the overpayments.
Management Response
Concur: We recommend that HRD be responsible for securing repayment agreement and
developing accompanying policy to include a time limit for repayment. Payroll will
aggressively collect overpayment and referred any uncollected amounts to the School
Board Attorney.
Target Date: September 2009
Automate Garnishment Transactions and Charge a Processing Fee
According to the Virginia Department of Labor and Industry, “An employer may charge the
employee a processing fee, not to exceed $10 for each garnishment summons and $20 for
each tax lien.” For support orders, “Under Virginia law, the employee may be charged $5.00
for each pay period for support orders.” All garnishment orders are received and handled by
Payroll. Payroll manually calculates an employee’s disposable income, determines the
appropriate deductible amount in light of any other garnishment orders applicable to the
same employee, enters deduction codes in the payroll system, pays the garnishing entity and
monitors when the garnishment will be completed. Payroll does not charge the employee a
processing fee for the garnishment.
The payroll section has been operating using the same process that has been put in place from
years ago. The workload for one of the payroll technicians is substantial due to the number
of employees subject to garnishment orders.
Due to the large number of garnishment summons received and processed, it is possible that
some payment instructions can be lost in transition which will result in missing payments that
can open the system up to fines and penalties. The department is missing the opportunity of
collecting revenue of at least $3,310 ($10 for each garnishment summons received).
Review of Payroll Process 23
Recommendations
12) The Supervisor of Payroll needs to develop a plan of action to automate garnishment
transactions. This will eliminate a lot of the manual time utilized for handling the
garnishments and also will provide a means for tracking and properly monitoring the
garnishment information.
13) The Superintendent should submit to the School Board for approval the consideration
of implementing charging a $10 processing fee for all garnishment summons
received.
Management Response
Concur: Payroll Supervisor has submitted a work request to ICTS to have garnishment
calculations automated.
Target Date: June 2010
Employee Leave Taken but Not Recorded in System and Payroll Verifications are Not Submitted Timely
We reviewed the leave time for contract employees to identify if all leave time is reported
and to see if all additional hours worked is accurate. However, department managers are
required to submit absences in accordance with the payroll schedule. There is a lack of
supervisory controls when it comes to ensuring that all leave taken by employees is being
recorded in the system. We reviewed the leave of all administrative employees to determine
the appropriateness of the leave taken and the ending leave balances. During our review, we
identified 11 employees whose leave time looks questionable due to the small amounts of
time coded for the entire audit period. In one case the employee has only taken 24 hours of
leave time which was actually in 2007. No time has been taken by this employee since that
time.
We also performed observation of floors 12 th through 17 th during holiday times to ensure that
absent employees properly recorded their time on the system. We identified the employees
Review of Payroll Process 24
mostly in one department that had taken off during Thanksgiving, the Winter Break and other
reasons, but no time was charged against the system for this time off.
There is a problem with the departments submitting their payroll in a timely manner. We
have a lot of departments that repeatedly appear on the semimonthly notice sent out by the
Payroll section. There is nothing done by the Supervisor of Payroll to address the issues of
the departments that consider to be late with the submission of their payroll. The department
discussed above on not recording leave did not submit payroll for 3 months and nothing was
done to address this problem.
The supervisors are not ensuring that all employees are keying all absences to the system.
There are no supervisory controls in place to address this issue. Lack of control procedures
promoted the abuse of absence reporting. The School Board’s liability for accrued sick and
vacation leave is overstated.
Recommendations
14) The Supervisor of Payroll and Human Resources needs to develop procedures on the
monitoring of employee absences and distribute these procedures to the department
and school managers.
15) All departments should review recorded absences for their employees to ensure
accuracy.
Management Response
Concur: The Supervisor of Payroll will work with Human Resources in developing
procedures on the monitoring of employee absences and distribute these procedures to the
department and school managers.
Target Date: September 2009
Review of Payroll Process 25
Ensure Employees Follow Procedure on Recording Compensatory Time
A survey was performed of several timekeepers to gather information of their understanding
of the payroll process. Four of the eleven (36%) timekeepers surveyed responded that they
do not submit compensatory time to the payroll section to add onto the system. It is also
evident that compensatory time is not submitted to Payroll to log on system at the time it is
accrued. For example, the Director of Human Resources sent in a letter on December 15,
2008 to have compensatory time recorded on the system for an employee and the letter
indicated that the time had been accrued beginning April 26, 2008 through November 26,
2008. This employee was due to go on maternity leave and the 61.50 hours submitted in the
letter made it possible for no leave time to be charged against the sick leave balance or
vacation leave balance accrued by this employee.
Administrative Procedure #7.04 Overtime and Compensatory Time states, “Compensatory
time earned shall be recorded in a memorandum to payroll that is forwarded along with the
Time and Attendance worksheets. Compensatory time used shall be recorded on Time and
Attendance worksheets. In all cases, any hours worked in excess of 40 hours per week shall
be expressly approved in advance by the supervisor.”
The previous policy did not require compensatory time to be submitted and recorded on the
payroll system. Therefore, the staff has continued to operate based on outdated information,
and the Supervisor of Payroll has failed to update the manual to reflect administrative
policies. According to our conversation with employees, they are taking earned
compensatory time not actually recorded on the system.
Recommendations
16) The Director of Human Resources should include in Administrative Procedure #7.04
Overtime and Compensatory Time, that compensatory time should be submitted in a
memorandum to Payroll when the compensatory time is earned.
17) The Supervisor of Payroll and the Director of Human Resources needs to reinforce to
all current employees during training, the policy on compensatory time to ensure that
Review of Payroll Process 26
all time accrued is recorded on the system and the procedures are followed as written
in the Department of Human Resources Administrative Procedures 7.04.
Management Response
Concur: The Supervisor of Payroll will reinforce to all current employees during payroll
training sessions the policy on compensatory time to ensure that all time accrued is
recorded on the system during the time it is accrued and the procedures are followed as
written in the Department of Human Resources Administrative Procedures 7.04.
Target Date: September 2009 and ongoing
Implement Changes for Manual Checks
According to the policy in the Payroll Processing Manual, “For employees not paid or paid
incorrectly, your first response should be an adjustment on the next paycheck. If this doesn’t
satisfy the employee, a supplemental or manual check may be written. Supplemental/manual
checks will only be written under dire need circumstances. Human Resources will usually
request a supplemental/manual check for an employee who was set up late. To pay an
employee on the supplemental payroll the “Request for Supplemental Check” form must be
submitted by HRD to the Payroll Office by 10:00 am on supplemental calculation day. The
supplemental payroll is run the day after pay day.” All payroll financial information should
be captured and maintained in the AS400. The bank account should be reconciled to the
bank statement on a monthly basis. We identified the following concerns surrounding
manual checks:
Manual/Replacement Checks
The payroll staff issues supplemental manual checks when an employee does not receive
a physical paycheck, if an employee receives partial payment, when a direct deposit is
reversed, if an employee did not get paid for hours worked and if an employee is not set
Review of Payroll Process 27
up in the system. Replacement manual checks are issued for checks that are lost or
damaged. All of the manual checks are recorded in and printed from Quicken.
The original check for the replacement manual checks remains in the system if they are
identical to the original check. The supplemental manual checks are treated as zero net
checks in the system in order to process them against the accounting line. All the manual
checks are processed through a separate account other than the payroll bank account.
Payroll submits an invoice to Accounts Payable to replenish the account. The manual
check bank account is not reconciled.
Reduce Number of Manual Checks Issued
The number of manual checks has increased over the years from 192 in FY 2007 to 626
in FY 2009. Payroll processes manual checks for any employee demanding payment and
also to respond to with executive management requests.
None of the check numbers were entered in the AS400 but the original check numbers
remain in the system to account for the manual checks. The original checks will never
clear the bank and the reconciliation of the payroll bank account will always show these
checks as outstanding.
An invoice is provided to Accounts Payable to replenish the manual check account.
Accounts Payable submits a request to the City of Richmond for money needed to cover all
payments for bills due including the manual check invoices. There were 2 employees that
never cashed their checks for a total of $48,244.02. The money for these checks was
received during the regular payroll request at the time the original checks were processed.
The employees were required to return the original checks and were issued a manual check.
An invoice for these manual checks was submitted to Accounts Payable instead of having a
transfer done from the cash with the city account line since the money was already sitting
Review of Payroll Process 28
there from the original payroll request. The possibility exists that the replacement manual
checks and the original checks could be processed.
Recommendations
18) The Supervisor of Payroll should utilize the established procedure for
supplemental/manual checks. Manual checks should only be written in extreme
emergency situations otherwise an employee who has not been paid can be processed
on a supplemental payroll. By enforcing the procedure that is already in place this
should cut down on the number of manual checks being processed.
19) The Supervisor of Payroll needs to ensure that all manual checks are entered into the
financial system and should begin the process of entering all previously written
checks. The manual check bank account needs to be reconciled and should be done
on a monthly basis. The payroll staff must provide the complete and accurate
information to the General Ledger section.
Management Response
Concur: The Supervisor of Payroll will reiterate the policy in place on
supplemental/manual checks. We agree that manual checks should only be written in
extreme emergency situations. An accounting of manual checks will be submitted to the
Director of Finance and Chief Operating Officer for review on a monthly basis.
Target Date: September 2009
29 OTHER MATTERS TO REPORT
Work Hours
We performed a review of leave time recorded for all administrative employees and also
reviewed some of the programs that employ temporary employees and substitutes. During the
review however it was evident that there is potential abuse with the amount of hours being
reported and submitted for some of the employees. One item in particular has been investigated
and the Superintendent is taking corrective action.
Employee Contract Types
We did a comparative analysis survey of Richmond Public Schools’ payroll process to that of the
other surrounding districts. This was done to determine if RPS payroll guidelines were similar to
those of other school districts. We also wanted to identify items that Administration may want to
include or address in our guidelines. As a result of the survey, we did note that all of the other
school districts do not have 9 ½ months contracts for their employees. However, Richmond
Public Schools still have these types of contracts. Further discussion with a VRS representative
disclosed that a lot of the school districts changed the 9 ½ contracts to 10 month contracts due to
the amount of time associated with setting up these types of contracts.
This space left intentionally blank.
30 ACKNOWLEDGEMENTS
The results of the audit were discussed with the Director of Finance, Supervisor of Payroll and
with the Assistant Supervisor of Payroll. We appreciate the excellent assistance and cooperation
provided us by the personnel of the Department of Finance.
This space left intentionally blank.
top related