10 Ways to Prepare for a State Comptroller Payroll Audit

While a necessary accountability measure, there are few things municipalities dread more than a visit from the State Comptroller. If unprepared, a routine audit can quickly monopolize the resources of already short-staffed town, village, and city administrative departments.

So how can municipalities best prepare to for their next state comptroller audit? Auditor and Senior Examiner, William Naylor, of the NYS Comptroller’s Office shared a few insights at the 2017 New York Towns Conference.

According to Naylor, a State Comptroller’s Payroll Audit is looking for answers to the following questions:

1. Who are you paying?
2. What are you paying them?
3. Why are you paying them that amount?
4. Where does it say in your policies to pay them that amount?

In order to best prepare, here are 10 things that municipalities could be doing to better prepare for their next payroll audit.

1. Proper Classification of Employees: Department of Labor Regulations explicitly define exempt and non-exempt employees, as well as permanent employees vs. federal contractors. Upon hiring, ensure that each person on payroll is properly classified.
2. Ensure all employees have a home: While union employees will fall under the benefits policies governed by collective bargaining agreements, municipalities occasionally fail to assign non-union employees to an appropriate benefit unit. Personnel that do not fall under union contracts must fall under a separate personnel policy outlining their deductions, pay, and benefits.
3. All deductions and withholdings must be memorialized in a town’s policies and procedures: In other words, unless there is a policy or contract authorizing a deduction or withholding, don’t do it.
4. Be prepared to furnish the following personnel records:
   1. Original job application forms
   2. I-9 Employment Verification Records (E-Verify)
   3. Involuntary deductions applied to the employee’s pay
   4. Voluntary deductions authorized by the employee
5. Be prepared to furnish the following office records:
   1. Payroll procedures manuals
   2. Union contracts
   3. Board resolutions
   4. Leave rules and regulations
6. Be prepared to demonstrate the ability of your payroll process to do the following:
   1. Accurately calculate gross pay
   2. Apply deductions
   3. Calculate accruals
   4. Track and apply shift differentials
   5. Accurately capture time-punches and mitigate hour-inflation to buddy-punching or rounding
   6. Pay all employees in a timely manner

Auditors will typically come in and pick employee records at random to audit. Wow them with the first few, and you may be able to move things along without a deeper dive across your entire population.

7. Demonstrate a proper delegation and separation of duties: While the Town Supervisor will typically sign-off on each payroll, department heads or supervisors with daily oversight of employees ought to sign-off on timesheets and accrual balances. The State Comptroller asserts that those with the greatest ability to identify a time discrepancy (supervisors and department heads) should be accountable for reviewing timesheets at some point in the payroll process.
8. Appoint timesheet-change authority: Identify in payroll policies which personnel are authorized to make adjustments to employee time records, and ensure an audit trail is in place that shows who made the change and what the original time record showed prior to the change.
9. Account for the 53-week or 27-biweekly payroll aberrations: In those special years where there are extra payrolls in a year, make sure that the payroll budget or paychecks have been adjusted to accommodate.
10. Allocate pay properly at end-of-year: For split payrolls that span across fiscal years, develop a daily rate and ensure that appropriate dollar amounts are allocated to each year for annual expenditure reporting.

How can technology help achieve a positive payroll audit?

Given that the majority of audit items listed by the State Comptroller pertain to process accountability, pay and accrual calculation accuracy, and policy adherence, municipalities can leverage HR and Human Capital Management (HCM) technology to reduce the instances of human error and develop a secure and audit-worthy payroll system.

Specifically, HCM technology can boost audit-readiness by:

• Regulating supervisor view and edit permissions for employee time and accrual data
• Automating accrual calculations to mirror CBA and contract rules
• Producing on-demand historic payroll and accrual balance reports
• Offering secure electronic document storage for quick access to employee records

To learn more about how one mid-size town leveraged HCM technology to improve compliance and operations, download or free case study below.