PAYROLL PROCESS AUDIT

1
PAYROLL PROCESS AUDIT

• Fiscal Agent Survey Information, Results, and
  Audit Recommendations
• Presented by the
• Office of Internal Auditing
• December, 2004

2
Payroll Process AuditIntroduction

• As a part of the Payroll Process audit, Internal
  Auditing asked each fiscal agent to respond to a
  survey. The purpose of the survey was to garner
  information regarding fiscal agent knowledge of
  requirements, current departmental practices, and
  any questions, suggestions, and comments from
  fiscal agents regarding the payroll process.

3
Payroll Process AuditIntroduction

• This presentation is to share with you the
  results of the survey (part 1) and
  recommendations (part 2). Part 1s format will
  be to provide an explanation of the requirement
  (from law, policy, or procedure) and then share
  the results of that particular survey question.
  There were 16 questions.
• Part 2 will then provide the audits
  recommendations affecting fiscal agents and
  departments. These recommendations are a
  culmination of the survey results and testing.

4
Payroll Process Audit

• Part 1
• The following slides will show each survey
  question on the left-hand side. The right-hand
  side will show the requirement (a law, policy,
  procedure, etc.) followed by a summary of fiscal
  agents responses and comments by Internal
  Auditing.

5
Payroll Process AuditExplanation of Requirement

• Monthly Salaried employees include those in
  faculty, administrative professional and civil
  service exempt positions.  These employees are
  paid on a monthly basis according to the terms of
  their contracts.  Salaried employees do not fill
  out time cards.  Fiscal agents are, however,
  responsible for recording benefit usage for each
  monthly-paid employee that reports to them.
  Benefit usage is recorded on the Positive Time
  Roster.
• (University Processes Guide)

• 1. How do employees in the department report or
  summarize their time off?

6
Payroll Process Audit Explanation of Requirement

• Hourly One time card will be printed per
  employee, per account charged.  Total time on
  each day is to be reported to the nearest
  hundredth of an hour.  Sick and accrued leave are
  to be recorded in 1/2 hour increments.
  Bereavement leave is to be recorded in 1/2 day
  increments (3.75 or 4 hours, whichever is
  applicable).  Employees are responsible for the
  accurate recording of time worked and benefits
  used.
• (Paraphrased from University Processes Guide)

• 1. How do employees in the department report or
  summarize their time off?

7
Payroll Process AuditSurvey Responses

• Time Cards
• Monthly reports of time off to supervisor
• Requests for time off
• Maintained on office calendar or Outlook calendar

• 1. How do employees in the department report or
  summarize their time off?

Audit Note Any of these methods of tracking
time off are acceptable. The objective is to
correctly report time off on the employees Time
Card or departments Positive Time Roster.
8
Payroll Process AuditSurvey Responses

• Copies of Time Cards, Positive Time Rosters, and
  Student Time Rosters
• Departmental databases or calendars
• Requests or reports of time off used
• Student daily time sheets

• 2. What documentation does the department
  maintain to support hours worked, as well as
  vacation and sick leave taken?

Audit Notes Again, any of these are acceptable.
The objective is to ensure that time off
reported on Time Cards and Positive Time Rosters
is supported by documentation.
9
Payroll Process AuditExplanation of Requirement

• All records created or received by or under the
  authority of or coming into the custody, control,
  or possession of public officials of this State
  in the course of their public duties are the
  property of the State. These records may not be
  mutilated, destroyed, transferred, removed, or
  otherwise damaged or disposed of, in whole or in
  part, except as provided by law.
• (State Records Act)

• 3. How long are these records maintained?

10
Payroll Process AuditSurvey Responses

• Responses ranged from one year to indefinitely.

• 3. How long are these records maintained?

Audit Notes You should look at your record
retention schedule for your area or contact the
Records Custodian. Prior approval for
destruction must be obtained from the State
Records Commission.
11
Payroll Process Audit Explanation of Requirement

• Although there is no particular guidance on this
  question, fiscal agents should use good business
  practice.

• 4. How does the department ensure the employee
  is actually at work (i.e., observation, quota)?

12
Payroll Process AuditSurvey Responses

• Observation and interaction
• Attendance at classes, meetings, etc.
• Timely completion of work
• Shift logs
• Timekeeping software
• Monitored by granting agency
• Honor system

• 4. How does the department ensure the employee
  is actually at work (i.e., observation, quota)?

Audit Notes Examples of good business practice
include observation of the employee working,
noting that work was completed, etc.
13
Payroll Process Audit Explanation of Requirement

• Faculty and AP Employees Sick leave may be
  used for injury or illness of an employee,
  including temporary disability caused or
  contributed to by pregnancy, which prevents the
  employee from performing assigned duties. An
  employee may use up to five days of earned sick
  leave per calendar year for absences resulting
  from the illness or injury of a parent, spouse,
  or child. Upon approval of the President an
  employee may use additional accrued sick leave
  for such absences.
• (Board of Trustees Regulation II.B.6.c.(3))

• 5. Is sick leave ever used in place of vacation
  time?

14
Payroll Process AuditExplanation of Requirement

• Civil Service Employees An employee may use
  accumulated sick leave only when the employee is
  prevented from performing assigned duties because
  of illness, injury, pregnancy, or temporary
  disabilities, or is obtaining medical or dental
  consultation or treatment, or for special
  circumstances stipulated under the Family Medical
  Leave Act (FMLA), or the Bereavement Leave
  provision of these Regulations.
• (Board of Trustees Regulation II.C.7.d.(5))

• 5. Is sick leave ever used in place of vacation
  time?

15
Payroll Process AuditSurvey Responses

• No
• Several fiscal agents noted that this is
  difficult to police, so they must rely on the
  employees honesty.

• 5. Is sick leave ever used in place of vacation
  time?

Audit Notes The Board of Trustees Regulations
clearly state the criteria for sick leave sick
leave cannot be used in place of vacation
(accrued) leave.
16
Payroll Process Audit Explanation of Requirement

• Supervisors are responsible for ensuring that
  sick leave benefits are used in accordance with
  Board of Trustees Regulations or collective
  bargaining agreements and that usage is
  accurately reported. Sick leave usage shall be
  reported by the supervisor to the Department of
  Human Resources. Employees are individually
  responsible for reporting use of their sick leave
  benefits to their supervisors.
• Employees are responsible for notifying their
  immediate supervisor as soon as possible, but no
  later than the start of the assigned work day, if
  they will not be on duty because of illness.
  Non-notification, except in an emergency
  situation, may result in disciplinary action.
  (Internal Governing Policy 6, Benefits Sick
  Leave)

• 6. What are the procedures you follow to adhere
  to Internal Governing Policy 6?

17
Payroll Process AuditSurvey Responses

• Review IGP 6 with employees
• Potential to request physicians letter stating
  employee is able to return to work
• Obtain prior approval of absences when known

• 6. What are the procedures you follow to adhere
  to Internal Governing Policy 6?

Audit Notes IGP 6s enforcement relies
primarily on the honesty of employees.
Supervisors and fiscal agents should review IGP
6 with their employees and have a procedure for
approving leave in advance when possible.
18
Payroll Process AuditExplanation of Requirement

• Sick leave must be filed whenever an employee is
  unable to perform her/his professional
  obligations, either on or off campus, for reasons
  of illness or injury. Procedures for reporting
  sick leave will be developed at the University
  and provided to each employee. An employee on
  sick leave will remain in that status until
  she/he informs the University that she/he is able
  to return to work.
• (2002-2006 EIU-UPI Unit A Agreement and
  2002-2006 EIU-UPI Unit B Agreement)

• 7. How is sick time calculated for faculty?
  For example, if the faculty member is sick for a
  week but only teaches for three days, how much
  sick time is reported?

19
Payroll Process AuditSurvey Responses

• If gone a week, report 5 days
• Reported for any day or portion of a day that
  faculty are scheduled to hold office hours and/or
  are assigned to teach
• Not reported if a substitute teaches class

• 7. How is sick time calculated for faculty?
  For example, if the faculty member is sick for a
  week but only teaches for three days, how much
  sick time is reported?

Audit Notes The first response is correct
treatment under the Agreement. The second
response could be correct depending on the
timing. The third response is incorrect.
20
Payroll Process Audit Explanation of Requirement

• Monthly Benefit usage for any given month
  cannot exceed the balance available for that
  month.
• (University Processes Guide)
• Hourly Hours used cannot exceed the balance
  available.
• (University Processes Guide)

• 8. How does the department check leave balances
  to ensure that leave given to employees does not
  exceed their available balances?

21
Payroll Process AuditSurvey Responses

• Based on the amounts listed on the Positive Time
  Roster or Time Card
• Internal spreadsheet or database
• Verified through the mainframe or call Human
  Resources
• Left to employee
• No real need due to employees large leave
  balances

• 8. How does the department check leave balances
  to ensure that leave given to employees does not
  exceed their available balances?

Audit Notes Any of these except Left to
employee is acceptable. If there is a question,
the supervisor should verify that leave balances
exist before returning the Time Card or Positive
Time Roster.
22
Payroll Process Audit Explanation of Requirement

• Employees in non-negotiated classifications
  that are covered by the overtime provisions of
  the Fair Labor Standards Act will be compensated
  at time and one-half either in cash or by
  allowing compensatory time off, for all time in a
  work week in excess of the number of hours of
  work comprising an established full-time daily or
  weekly work schedule.
• (Board of Trustees Regulations II.C.8.a.(1))

• 9. Do employees receive compensatory time off
  for overtime work?

23
Payroll Process AuditSurvey Responses

• Yes, at employees choice
• Yes, when overtime is necessary to avoid cash
  payment
• No, overtime is not allowed

• 9. Do employees receive compensatory time off
  for overtime work?

Audit Notes Any of these responses is
acceptable.
24
Payroll Process Audit Explanation of Requirement

• Record all compensatory (comp. time) hours
  worked.  These hours will not be paid or used in
  the calculation of benefits earned until they are
  reported as used.  Comp. time is assigned
  overtime worked, over the established work day
  (normally 7.5 hours) or work week hours (normally
  37.5 hours), for which an employee will be
  granted time off in lieu of payment.  In
  accordance with the University's overtime policy,
  the maximum compensatory hours that may be
  accumulated cannot exceed the equivalent of the
  full-time biweekly work schedule (normally 75
  hours, or as an employee's contract allows).
• (University Processes Guide)

• 9. What records are maintained by the
  department and how is the choice made for
  compensatory time off or paid overtime made?

25
Payroll Process AuditSurvey Responses

• Time Cards
• Employees track
• Log of dates and hours worked kept with
  departmental Time Card copies

• 9. What records are maintained by the
  department and how is the choice made for
  compensatory time off or paid overtime made?

Audit Notes Again, any of these methods are
acceptable as long as the time is correctly
reported on the employees Time Card.
26
Payroll Process Audit Explanation of Requirement

• Although there is no particular guidance on this
  question, fiscal agents should use good business
  practice.

• 10. Do employees use make up time for coming
  in late or leaving early? If so, how is this
  monitored?

27
Payroll Process AuditSurvey Responses

• When Used
• Use of flexible schedules
• Attendance at classes during work hours
• For an occasional special event
• To handle peaks in workloads (such as beginning
  of semester)

• 10. Do employees use make up time for coming
  in late or leaving early? If so, how is this
  monitored?

Audit Notes Good business practice should be
used until a University-wide policy or procedure
is developed.
28
Payroll Process AuditSurvey Responses

• How Monitored
• Observation
• Log or other written communication
• Honor system

• 10. Do employees use make up time for coming
  in late or leaving early? If so, how is this
  monitored?

Audit Notes The preferred methods of monitoring
would be observation or written communications,
with the honor system being the last resort.
29
Payroll Process Audit Explanation of Requirement

• There is no particular guidance to fiscal agents
  on this issue.

• 11. Are employees shared with other departments
  when workloads are low? If not, would you
  consider sharing an employee with other
  departments?

30
Payroll Process AuditSurvey Responses

• Departments generally stated that workloads would
  not allow for this.
• Some departments already do cooperate in running
  campus errands.
• Six departments did note sharing already
  occurring with other departments others shared
  within the same department.

• 11. Are employees shared with other departments
  when workloads are low? If not, would you
  consider sharing an employee with other
  departments?

Audit Notes Sharing employees during periods
where workloads are low promotes efficiency and
effective use of employee time and University
funds (per IGP 133, Internal Control).
31
Payroll Process Audit Explanation of Requirement

• The primary purpose of this particular question
  was to obtain information for the Payroll Office.
  The information was requested to assist in
  implementing Kronos, the time and attendance
  system. Kronos requires the identities of
  employees who enter or approve time.
• A secondary purpose was to test whether proper
  segregation of duties were in place to ensure
  that employees who prepare payroll documents are
  independent of the employees who approve payroll
  documents.

• 12. Who is responsible for preparation and
  approval of the departments time cards, monthly
  positive time roster, and student time roster?

32
Payroll Process Audit Explanation of Requirement

• Positive Time Rosters Fiscal agents are,
  however, responsible for recording benefit usage
  for each monthly-paid employee that reports to
  them.  Benefit usage is recorded on the Positive
  Time Roster.
• (University Processes Guide)

• 12. Who is responsible for preparation and
  approval of the departments time cards, monthly
  positive time roster, and student time roster?

33
Payroll Process Audit Explanation of Requirement

• Time Cards Employees are responsible for the
  accurate recording of time worked and benefits
  used. The signature of the fiscal agent (or
  fiscal agent's designee) of the account to be
  charged is required.  The employee's supervisor
  must also sign the time card.
• (University Processes Guide)

• 12. Who is responsible for preparation and
  approval of the departments time cards, monthly
  positive time roster, and student time roster?

34
Payroll Process Audit Explanation of Requirement

• Student Time Rosters The fiscal agent or one
  of his designees must sign the completed roster.
• (University Processes Guide)

• 12. Who is responsible for preparation and
  approval of the departments time cards, monthly
  positive time roster, and student time roster?

35
Payroll Process AuditSurvey Responses

• Audit Notes These responses have been provided
  to Payroll to help in the implementation of
  Kronos, the time and attendance reporting system.
• We verified through testing that the names
  and/or positions provided by fiscal agents showed
  that employees preparing payroll documents were
  independent of those employees who approve
  payroll documents.

• 12. Who is responsible for preparation and
  approval of the departments time cards, monthly
  positive time roster, and student time roster?

36
Payroll Process Audit Explanation of Requirement

• There is no particular guidance on this question.

13. Have there been any errors or inaccurate
information sent to the department by Payroll?
If so, please discuss the errors and how they
were corrected.
37
Payroll Process AuditSurvey Responses

• Very few errors were given, and most involved
  the department providing incorrect information
  (such as incorrect hours, mathematical errors,
  over-use of leave, etc.)

• 13. Have there been any errors or inaccurate
  information sent to the department by Payroll?
  If so, please discuss the errors and how they
  were corrected.

• Audit Note Based on a suggestion, the
  following action was taken
• Bereavement leave information was added to the
  Positive Time Roster

38
Payroll Process Audit Explanation of Requirement

• There is no particular guidance on this question.

• 14. Has the department requested a payroll
  check outside of the normal process during the
  past year? If so, why was this necessary?

39
Payroll Process AuditSurvey Responses

• Departments reported requesting manual checks
  for the following reasons
• Employee leaving country
• Problems with contract posting
• Problems with individual employees turning in
  time reports

• 14. Has the department requested a payroll
  check outside of the normal process during the
  past year? If so, why was this necessary?

Audit Notes Internal Auditing estimated that
each check requested outside of the normal
payroll run costs 38.42.
40
Payroll Process Audit Explanation of Requirement

• There is no particular guidance on this question.

• 15. Do you, as a fiscal agent, receive timely
  and understandable information about payroll
  expenditures that affect your account? If not,
  what type of information do you find lacking?

41
Payroll Process AuditSurvey Responses

• There were a few concerns about the
  understandability of the information. These
  concerns related more to the monthly accounting
  statements than payroll information.

• 15. Do you, as a fiscal agent, receive timely
  and understandable information about payroll
  expenditures that affect your account? If not,
  what type of information do you find lacking?

42
Payroll Process AuditSurvey Responses

• Additional training for supervisors this will
  be done through the Fiscal Agent Responsibility
  Series
• Electronic time reporting this will be done as
  Kronos is implemented

• 16. Do you have any other suggestions or
  comments?

43
Payroll Process AuditSurvey Responses

• Too short of a turn-around time for Time Cards
  and Rosters longer turn-around times would mean
  less timely information reported on Time Cards
  and Rosters
• Paperwork burden of student help crossing fiscal
  years in grant accounts this is a result of
  grant account numbers changing for financial
  reporting, not the Payroll Office.

• 16. Do you have any other suggestions or
  comments?

44
Payroll Process AuditSurvey Responses

• The comments received on the survey show that
  fiscal agents are satisfied with Payrolls
  services in general.

45
Payroll Process Audit

• Part 2
• While the preceding slides dealt with the fiscal
  agent survey, the following slides with
  recommendations are based on the entire audit.
• Recommendations affecting fiscal agents have
  been summarized on the following slides, along
  with quotes explaining what requirement the
  recommendation is based upon. The
  recommendations are in order by federal, state,
  and University policies.

46
Payroll Process AuditIntroduction

• This presentation is to share with you the
  results of the survey (part 1) and
  recommendations (part 2). Part 1s format will
  be to provide an explanation of the requirement
  (from law, policy, or procedure) and then share
  the results of that particular survey question.
  There were 16 questions.
• Part 2 will then provide the audits
  recommendations affecting fiscal agents and
  departments. These recommendations are a
  culmination of the survey results and testing.

47
Payroll Process AuditRecommendations

• Tips should be reported to Payroll

• Except as otherwise provided in this subtitle,
  gross income means all income from whatever
  source derived, including (but not limited to)
  the following items (1) Compensation for
  services, including fees, commissions, fringe
  benefits, and similar items
• (Federal Internal Revenue Code)

48
Payroll Process AuditRecommendations

• Employees must take at least a 20-minute break
  no later than the first five hours of work

• Every employer shall permit its employees who
  are to work for 7 1/2 continuous hours or longer,
  except those specified in this Section, at least
  20 minutes for a meal period beginning no later
  than 5 hours after the start of the work period.
• (States One Day Rest in Seven Act)

49
Payroll Process AuditRecommendations

• Time Cards and Positive Time Rosters must be
  accurately completed if schedule changes are
  necessary, a Flexible Work Schedule form should
  be completed

• The certification on every State payroll voucher
  shall be as follows     "I certify that the
  employees named, their respective indicated
  positions and service times, and appropriation to
  be charged, as shown on the accompanying payroll
  sheets are true, complete, correct and according
  to the provisions of law that such employees are
  involved in decision making or have direct line
  responsibility to a person who has decision
  making authority concerning the objectives,
  functions, goals and policies of the
  organizational unit for which the appropriation
  was made that the results of the work performed
  by these employees and that substantially all of
  their working time is directly related to the
  objectives, functions, goals, and policies of the
  organizational unit for which the appropriation
  is made that all working time was expended in
  the service of the State and that the employees
  named are entitled to payment in the amounts
  indicated. If applicable, the reporting
  requirements of Section 5.1 of 'An Act to create
  the Bureau of the Budget and to define its powers
  and duties and to make an appropriation',
  approved April 16, 1969, as amended, have been
  met.
• (State Finance Act)

50
Payroll Process AuditRecommendations

• Supervisors should monitor temporary upgrades to
  ensure they do not exceed 30 days

• Such temporary upgrading and downgrading
  assignments must not be for more than 30
  consecutive work days duration.
• (Rules of the State Universities Civil Service
  System)

51
Payroll Process AuditRecommendations

• Supervisors should be mindful that compensatory
  time is limited to the hours worked in two
  full-time weeks

• An employee may not accumulate compensatory time
  off for overtime beyond a maximum of the number
  of hours equivalent to the hours in the
  employee's full-time work week for two weeks
  (three weeks for University Police officers).
• (Universitys Internal Governing Policy 38)

52
Payroll Process AuditRecommendations

• Supervisors should follow the EIU-UPI Agreement
  consistently when recording faculty sick leave

• Sick leave must be taken in units of no less
  than one-half day. Sick leave must be filed
  whenever an employee is unable to perform her/his
  professional obligations, either on or off
  campus, for reasons of illness or injury.
  Procedures for reporting sick leave will be
  developed at the University and provided to each
  employee. An employee on sick leave will remain
  in that status until she/he informs the
  University that she/he is able to return to work.
• (2002-2006 EIU-UPI Unit A Agreement and
  2002-2006 EIU-UPI Unit B Agreement)
• See Provosts memo dated February 11, 2005

53
Payroll Process AuditRecommendations

• Fiscal agents should ensure that additional or
  high-level duties are notated when stipends are
  granted

• A stipend may be paid to an employee for
  performance of higher-level duties that are in
  addition to the individual's normal duties.
• (University Processes Guide)
• Strong internal controls include documentation.
  Documenting the higher-level duties helps ensure
  that there is no misunderstanding between the
  employee and supervisor and provides a
  paper-trail should the payments be questioned.

54
Payroll Process AuditRecommendations

• Supervisors and fiscal agents should respond to
  desk audit reports in a timely manner by
  reclassifying the employee or reducing the
  employees responsibilities

• Good business practice dictates that
  transactions be approved in a timely manner.

55
Payroll Process Audit

• Again, we appreciate the cooperation of the
  fiscal agents and designees who participated in
  this survey. Your input allowed us to see the
  payroll process through your experiences.