Summary
Summary Payroll and personeel substantive procedures
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This document contains information on how to formulate substantive procedures for payroll and personeel as an auditor.
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Substantive procedures of the payroll and personnel cycleAnalytical procedures
Analytical procedures will include:
✓ Comparisons
- salaries: month to month by division, department or section
- wages: period to period by cost centre, etc.
- salaries and wages to the prior year corresponding period, and
- deductions paid over to third parties, month to month.
✓ Ratio and trend analysis, for example
- salaries as a percentage of total expenses
- wages as a percentage of production costs, and
- wages in relation to production (output).
✓ Investigation of fluctuations and follow up of any explanations given by
the client.
Procedures to confirm that employees on the payroll are not
fictious
To do this, the basic approach will be to extract a sample of employees from
the payroll selected:
✓ Inspect the documentation in the employee’s personnel file, for example,
signed employment contract, identity details (identity numbers can be verified
on the national identity number database), tax registration forms, etc. and
agree it to the payroll.
✓ Perform a positive (physical) identification of the employee where possible;
this would involve visiting the employee at his place of work during working
hours and inspecting his personal identity document or staff identity tag.
✓ Enquire of senior personnel to confirm (in writing) that specified individuals
are employed in their section or division.
✓ Inspect returns to outside entities for the inclusion of employees selected in
the sample, for example, PAYE reconciliations submitted to SARS, or medical
aid contribution returns.
✓ Use audit software to scan the employee masterfile for “error conditions” that
may indicate fictitious employees, for example:
- duplicated or missing identity numbers
- duplicated or missing tax reference numbers
- duplicated bank accounts, and
- duplicated staff employee numbers.
✓ By discussion with the staff in the personnel section and examination of the
employment and dismissal/ resignation documentation, confirm that
employees are put onto or removed from the masterfile on the correct date.
Detailed testing of the payroll
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