1. COMMON PAYROLL FRAUDS

　　Even companies that appear to have good internal controls can suffer from instances of fraud. The most common payroll frauds include:

　　a) The inclusion of fictitious (ghost) employees on the payroll

　　b) Deliberate timing errors

　　c) Requesting a cheque for net wages in excess of the required amount.

　　d) Payment of unauthorised/invalid overtime

　　2. AUDIT WORK ON WAGES

　　Most of the audit work on the wages system should be performed during the interim audit but some substantive procedures to confirm payroll costs and wage accruals should normally form part of the final audit.

　　Interim audit work on wages should involve the normal stages of recording, evaluating and testing internal controls.

　　3. WAGES CONTROL OBJECTIVES

　　Typical control objectives for wages include the following:

　　a) To ensure that employees are only paid for work done.

　　b) To ensure that wages are only paid to valid employees.

　　c) To ensure that all wages are authorised

　　d) To ensure that wages are paid at the correct rates of pay

　　e) To ensure that wages are correctly calculated.

　　f) To ensure all wages transactions are correctly recorded in the books of account.

　　g) To ensure that all payroll deductions are paid over to appropriate third parties (for example, tax authorities)

　　4. EVALUATION OF THE INTERNAL CONTROL SYSTEM

　　The evaluation should be performed by considering if controls exist to ensure specified control objectives are met.

　　Auditors often complete questionnaires to assist in system evaluation. Internal Control Questionnaires (ICQs) ask specific questions about controls relevant to each control objective. The alternative is an Internal Control Evaluation Questionnaire (ICEQs), sometimes referred to as key or control questions which focus on risks rather than objectives. They cover the same areas as control objectives and typical examples include:

　　• Can employees be paid for work not done?

　　• Can wages be paid to fictitious employees?

　　• Can unauthorised wages be paid?

　　• Can errors occur in wage calculations?

　　• Can wage costs be incorrectly recorded?

　　5. STAGES IN A WAGES SYSTEM

　　Five stages are shown below and typical controls identified are linked to relevant control objectives.

　　(i) Setting up master file data

　　(ii) Recording wages due

　　(iii) Calculation of wages

　　(iv) Payment of wages

　　(v) Accounting for wage costs and deductions