Hiring a Payroll Audit Firm, Question 5: Do You Audit All Employees 100% or Do You Test Employees?BondBeebe
Posting by Larry Beebe, CPA
As part of this series, I am providing Plan Trustees with a list of questions they should ask when requesting proposals from payroll auditing firms. Click here to view the full list of questions.
There are two schools of thought as to whether a 100% audit for all hours for all employees covered by the Collective Bargaining Agreement (CBA) should be done when conducting a payroll audit. Some professionals state that you should always do a 100% audit because even a ten- or 20-hour shortage could mean the difference between a person receiving or not receiving a pension.
Others feel that a 100% audit violates the cost/benefit relationship. The cost of obtaining audit evidence should not outweigh the benefit obtained. Doing a 100% audit of the population, except in those instances where the population is very small, could cost thousands of dollars. Can trustees justify a payroll audit that costs $20,000 if a deficiency of only $308 is found?
The decision as to whether to do a 100% audit of all employees should be made by the trustees before the payroll auditor is hired. Likewise, prospective payroll audit firms should be notified whether a 100% audit or audit testing is required. Additionally, Trustees may want to ask prospective payroll auditing firms their thoughts and concerns about doing a 100% audit vs. testing.
For more in this series, see:
- Question 4: What is the relationship between your audit findings and your audit costs?
- Question 3: How many of your payroll audits have findings?
- Question 2: How many audits do you perform?
- Question 1: How many years have you been doing payroll audits?