Preparing for a Payroll Compliance Audit in 3 Simple Steps
There it is, sitting on your desk, a notification letter from an auditing firm advising that you have been selected for a payroll compliance audit. That’s just great. Because you don’t have anything better to do today than to call the auditing firm to schedule the audit, to take the time to gather documents, and to prepare for the auditor’s arrival.
Whether you’re a seasoned veteran of payroll compliance testing or this is your first experience, there are proactive steps you and your organization can take to ensure your payroll compliance testing appointment runs efficiently. Before you consider crumpling up the notification letter and tossing it, consider applying the simple steps below to speed up the payroll audit process and see the auditor out the door in record time.
Step 1. Review the Notification Letter. (See attached example) This letter should, at a minimum:
- Explain the purpose of the testing to be performed
- Identify the period that the testing will cover
- Provide a point person to contact at the auditing firm to schedule the appointment
- List the records that you are responsible for furnishing at the time of the appointment
Step 2. Prepare for the appointment.
- Use the notification letter as your checklist of records to prepare. About a week prior to the appointment, if you haven’t already, review the records over the phone with the auditor and discuss specifics of the appointment. Some of the records requested may not be applicable, depending on your situation. Discuss this with the auditor, prior to the appointment, before spending time gathering those documents.
- Provide records electronically, if possible. The auditor is familiar with most common accounting software and can help you run specific reports to aid in testing more efficiently. In addition, you may securely transmit records to the auditor for processing prior to the appointment date, which can dramatically reduce the overall time that the auditor would spend in your office.
- Reserve adequate workspace for the auditor to perform the testing.
Step 3. Be available during the appointment.
- The auditor will have questions for you throughout the course of the appointment. Be sure to schedule the appointment during a time when you can be available to the auditor; for example, month-end may be your busiest time of the month and would not be an ideal time to schedule the appointment. The more accessible you are to answer questions and provide additional information, if needed, the sooner the auditor will be able to complete their testing.
- Professional accounting standards require a responsible party, such as an officer or principal of the company, to be available to sign a representation letter after the payroll audit, which confirms their compliance with certain aspects of the compliance testing. If you are not an officer or principal of the company, confirm that someone with that level of authority will be available at the conclusion of the audit.
Preparation and communication are the key components to having an efficient payroll compliance testing experience. The success of an efficiently run audit is directly related to how prepared the company is at the time of the appointment. There is no need to wait for the notification letter to arrive to start preparing; for payroll audit records that can’t be run on demand from your system, consider maintaining them in soft-copy format. Examples of relevant records would include monthly transmittals, time cards, dispatch slips, etc. By following the three steps provided, perhaps you won’t want to toss the notification in the round file when it lands on your desk, because you will have taken steps to prepare for the audit and see the process through conclusion in short order.