“How To” Series: To Reconcile or Not To Reconcile – That is the Question

Posting by Phil Vivirito

Over the next few weeks, Phil Vivirito, Bond Beebe’s Director of Payroll and Compliance Auditing, will explain several fundamental payroll auditing principles.  This week he reviews the best practices for determining whether or not to reconcile the payroll.

One of the arguments among payroll auditors is whether or not the auditor should reconcile the payroll. If your client’s payroll audit program states that you must, then you have no choice but to do so. But, if the audit program has no such statement, the auditor then has a choice. The question that the auditor would need to answer is:  How do I know if I have the entire payroll?

Reconciling the payroll can be a labor-intensive and time-consuming process. If you are at a small employer, it is relatively quick and easy to reconcile the payroll, but not all employers are small.  There are a few things you can do to quickly and easily determine if you have the entire payroll:

  • Discover if the payroll processing company prepares the 941s. In some cases the 941 calculations, along with copies of the 941s, are included in the payroll binder. There is no reason to redo the payroll company’s math.
  • Review the W-2s. If you have the employer’s W-2s in a book format (printed out – one, two, or three to a page), check for page numbers. If page numbers skip, ask why; the employer may have pulled some out.  Is your audit contact person on the payroll or does s/he have a W-2? If not, find out why; there may be separate hourly and management payrolls, or you may not have a complete payroll.
  • Ask the employer if you have complete records. Does the size of the payroll provided make sense? If you are auditing a large plant, for example, and all production workers are covered, you should have a large payroll.

All of the above can lead you to question the employer. If you quickly discover that something is not right, bring it to the employer’s attention.  Without spending a lot of time you will know if you have the complete payroll, and then you can determine the appropriate course of action. You will achieve the same result as doing the entire payroll reconciliation, without spending all the time to do so.

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