SALARIES & WAGES

Transcription

1 CORPORATE CENTRE AUDIT, PERFORMANCE & PARTNERSHIPS DEPARTMENT FINAL INTERNAL AUDIT REPORT SALARIES & WAGES AUDITORS: L.BALLINGER I.KENT APRIL 2011

2 Table of Contents Area of Report Page Number 1.0 Introduction Background Scope and Objectives Methodology Findings Conclusion Recommendations 5 Appendices Detailed Findings Previous Report Recommendations Control Evaluation Plan Appendix A Appendix B Appendix C Appendix D

3 1.0 Introduction 1.1 As part of the audit plan for 2010/11 a system review was undertaken of Salaries and Wages, with coverage limited to Deductions, Starters and Leavers. The previous review undertaken in looked at Payments and Variations. 1.2 The system was examined using a CIPFA audit matrix to test the controls that should be in place within the Authority. 1.3 Sample testing was conducted for the 2010/11 financial year. 1.4 Acknowledgement is given to the staff concerned for their help and assistance during the course of the audit. 1.5 Copies of this report have been sent to the Director and Assistant Director of Customer Services, the Chief Finance Officer, the Exchequer Services Manager, and the Payroll Manager. A copy may also be passed to the Audit Committee for them to monitor/comment upon recommendations made and accepted. 1.6 The report is addressed to appropriate Councillors and Officers and may contain confidential and/or privileged material. Any review, reproduction, external distribution, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the Authority is prohibited. 2.0 Background 2.1 The Authority utilises the CHRIS21 system to process, record and control salary and wage payments. The system is an integrated Human Resource and Payroll system. The Human Resource element of the system has not been utilised to date. 2.2 Payment of salaries and wages are made monthly or weekly via BACS transmissions direct to recipients bank/building society accounts. 2.3 The basis on which employees are paid varies. Salaried employees are paid via submission of a salary return to the Payroll Service and waged employees are paid via submission of a timesheet to the Payroll Service. 3.0 Scope and Objectives 3.1 The objective of the audit was to evaluate the system of internal control with a view to delivering reasonable assurance to the Authority over the adequacy of the internal control environment. This is defined as the whole system of controls, established by management, which help to ensure the achievement of objectives, economy and efficiency, compliance with Merthyr Tydfil County Borough Council 13/05/2011 Internal Audit Service 1 of 5 Salaries And Wages

4 policies and procedures, safeguarding of assets and the integrity and reliability of information. 3.2 The system has been evaluated against the following control objectives: DEDUCTIONS All deductions should be carried out in accordance with HM Revenue and Customs, DSS, etc legislation. All transactions in respect of the payment of deductions to third parties should be in accordance with the organisation s standing orders and financial regulations. There should be documentary evidence to support all deduction transactions. There should be documentary evidence to support the payment of deduction monies to third parties. New employee records input to the payroll system are checked for verification. Calculations for payment of deductions should be complete and correct. Deduction transactions should be initiated and recorded promptly. STARTERS The organisation should comply with all HM Revenue and Customs and DSS regulations. The organisation should comply with all superannuation scheme requirements. There should be independent documentary evidence to support the creation of a new employee record. All payroll and personnel records should be updated to record a new employee. All payments to new employees should be calculated correctly. All starters should be initiated and recorded promptly. The person commencing employment should be bona fide. LEAVERS The organisation should comply with all HM Revenue and Customs and DSS regulations. All leavers should be authorised properly. There should be documentary evidence to support an employee leaving a post. All relevant parties should be informed of an employee leaving in order that records may be updated. All relevant records should be updated correctly when an employee leaves. All monies owing to the organisation should be calculated correctly and repaid promptly. Merthyr Tydfil County Borough Council 13/05/2011 Internal Audit Service 2 of 5 Salaries And Wages

5 Employees leaving the organisation should not be paid beyond their leaving date. 4.0 Methodology 4.1 The audit was undertaken using a risk-based auditing methodology. Actual controls were evaluated against the expected controls within each control objective. A risk assessment of the individual controls under each control objective was undertaken and the level of testing decided upon. The system evaluation and the results of compliance testing were then used as the basis on which to draw conclusions and to form an opinion on the overall effectiveness and adequacy of the internal control environment. 4.2 Recommendations made in the previous Internal Audit report were also examined to establish if they had been acted upon. 5.0 Findings 5.1 The detailed findings of the audit are included as Appendix A. 5.2 The previous audit report made 24 recommendations all of which were accepted by management. The previous recommendation priorities were: 21 priority 2; 3 priority The Internal Audit Service has established that: 16 had been implemented (13 priority 2, 3 priority 3); 3 had been partly implemented (3 priority 2); 4 had not been implemented (4 priority 2); 1 is now deemed no longer applicable (1 priority 2). Details of the previous recommendations made are included as Appendix B. Merthyr Tydfil County Borough Council 13/05/2011 Internal Audit Service 3 of 5 Salaries And Wages

6 6.0 Conclusion System of Internal Control 6.1 The system of internal control applied has been graded C - Satisfactory. While there is basically a sound system of control, there are weaknesses, which put some of the System's/Authority's or establishment objectives at risk. Testing Opinion 6.2 The assessment of compliance with established controls has been graded C - Satisfactory. There is evidence that the level of non-compliance with some of the controls may put some of the system's objectives at risk/may leave the Authority or establishment open to risk. Overall Opinion on Internal Control Environment 6.3 The overall conclusion is that the internal control environment is graded C - Satisfactory. Details of the evaluation of each objective are listed in Appendix C. Merthyr Tydfil County Borough Council 13/05/2011 Internal Audit Service 4 of 5 Salaries And Wages

7 7.0 Recommendations 7.1 Details of the recommendations are shown in the action plan attached as Appendix D. Summary of Recommendations 7.2 The review made 14 recommendations that are categorised on the following basis: Priority Category Definition No. Of Recs 1 Mandatory - Urgent is imperative to ensure that the objectives for the area 1 2 Mandatory - Less Urgent 3 Best Practice / Other Recommendations under review are met. Requires action to avoid exposure to significant risks in achieving the objectives for the area under review. is advised to enhance control or improve operational efficiency. 5 8 Risk may be viewed as the chance, or probability, of one or more of the Authority s objectives not being met. It refers both to unwanted outcomes that may arise, and to the potential failure to realise desired results. Management agreed to the implementation of all of the recommendations. Merthyr Tydfil County Borough Council 13/05/2011 Internal Audit Service 5 of 5 Salaries And Wages

8 Audit conclusions are graded using the following grading structure: Salaries Wages System Review Control Evaluation LEVEL OF CONTROL VERY GOOD GOOD SATISFACTORY UNSATISFACTORY POOR A B C D E EVALUATION OF SYSTEM OF INTERNAL CONTROL OPINION There is a sound system of internal control designed to achieve the Authority's strategic aims. There is a sound system of internal control designed to achieve the system/authority or establishment objective(s). While there is basically a sound system of control, there are weaknesses, which put some of the System's/Authority's or establishment objectives at risk. Weaknesses in the system of controls are such as to put the System's/Authority's or establishment objectives at risk. Control is generally weak leaving the System/Authority or establishment open to significant risks. A B C D E TESTING OPINION The controls are being consistently applied with no errors identified. The controls are being consistently applied with a small number of minor errors identified. There is evidence that the level of non-compliance with some of the controls may put some of the system's objectives at risk/may leave the Authority or establishment open to risk. The level of non-compliance puts the system's objectives/authority or establishment at risk. Significant non-compliance with basic controls leaves the System/Authority or establishment open to error or abuse. Risk may be viewed as chance, or probability, of one or more of the Authority's objectives not being met. It refers to both unwanted outcomes that may arise, and to the potential failure to realise desired results. OVERALL OPINION ON THE INTERNAL CONTROL ENVIRONMENT On completion of the audit the auditor will need to provide an evaluation opinion and a testing opinion, both these opinions will then be used to formulate an overall opinion of the system/establishment/area etc audited. The overall opinion will be formulated and arrived at by using the lower of either the evaluation opinion or testing opinion. Conclusion for Salaries & Wages System Review Overall Evaluation The system of internal control applied has been graded Satisfactory. While there is basically a sound system of control, there are weaknesses, which put some of the System's/Authority's or establishment objectives at risk. The assessment of compliance with established controls has been graded Satisfactory. There is evidence that the level of non-compliance with some of the controls may put some of the system's objectives at risk/may leave the Authority or establishment open to risk. Therefore the overall conclusion is that the internal control environment is graded Satisfactory. Appendix C Page 1 of 6

9 AREA OF AUDIT DEDUCTIONS Salaries Wages System Review Control Evaluation CONTROL TEST OVERALL REASONS 1 All deductions should be carried out in accordance A A A with HM Revenue and Customs, DSS, etc legislation. Controls ensure that the risk of non-compliance with legislation is minimised. It was confirmed from inspection of the payroll system that a record is maintained detailing all deductions made in respect of superannuation, national insurance and taxation for each employee for each pay run. 2 All transactions in respect of the payment of A A A deductions to third parties should be in accordance with the organisation s standing orders and financial regulations. Multiple controls and segregation of duties ensure that the risk of fraudulent or unauthorised payments being made is minimised. The payroll creditor payments for each monthly pay run from April to January for the 2010/2011 financial year were inspected - In all instances it was confirmed that the Payroll Manager had requested that the creditor payments be processed. 3 There should be documentary evidence to support all A A A deduction transactions. 4 There should be documentary evidence to support A A A the payment of deduction monies to third parties. 5 All relevant records and accounts should be updated A A A to record the deduction transaction. 6 Calculations for payment of deductions should be A A A complete and correct. Controls have been established to ensure that voluntary deduction requests are only processed upon receipt of authorisation. System parameters are set to ensure that all deductions are clearly displayed on employees payslips. It was found that of the 20 voluntary deductions sampled, all were supported by an authorised request. Reports of every deduction made are produced after every payrun. Information from these reports are forwarded to the applicable recipient organisations providing a clear evidence trail of what the payment is for and who the payment relates to. Established office procedures ensure that all input is subjected to a verification check reducing the risk of errors or omissions. Deductions are allocated a valid financial code. Deduction payments are updated to the relevant accounts. Checks are conducted by the Payroll Manager prior to every pay run. It was confirmed from inspection of the reports that each of the creditors had been paid the correct amounts. It was also confirmed by examining the Agresso system that the correct amounts for each creditor had been updated to the financial system. Annual reconciliations of salary deduction codes are conducted independently of the Payroll Service minimising the risk of misappropriations or miscodings. Appendix C Page 2 of 6

10 Salaries Wages System Review Control Evaluation TEST OVERALL AREA OF AUDIT CONTROL 7 Deduction transactions should be initiated and B B B recorded promptly. STARTERS REASONS Deduction payments are made at the same time that the payroll is paid ensuring that all payments are made on time. Holding accounts are cleared as and when resources allow and not strictly in adherence to the set timetable, although they are cleared regularly. 8 The organisation should comply with all HM Revenue B B B and Customs and DSS regulations. 9 The organisation should comply with all A B B superannuation scheme requirements. 10 There should be independent documentary evidence B D D to support the creation of a new employee record. New starters must provide a P45 form or if they do not have one they must complete a P46 form. The details from the P45/P46 forms are entered onto the payroll system by a Payroll operative. System parameters ensure that tax and national deductions must be made. Deductions made against 'default' codes are calculated at the basic rate. The Authority has a clear policy of inclusion for all employees, this is communicated to all new starters along with information regarding the right to opt out of the scheme. Confirmation of appointment is obtained for all starters, however, independent confirmation from the Human Resources Service is not always provided. From the sample of 25 new starters tested it was found that an appropriately authorised started form was found for all 25. It was found that a copy of the appointment letter had been received for only 8 out of 25 of the new starters. 11 New employee records input to the payroll system are C B C checked for verification. Whilst an independent check is conducted it is being conducted by a member of staff that is below the inputter in terms of seniority within the Service establishment structure, therefore compromising the effectiveness of the control. 12 All payments to new employees should be calculated B A B correctly. Salary grades are input in accordance with the authorised starter form details, and input is checked by another member of staff within the Payroll Service. A random sample of new starters was selected and the corresponding starter forms obtained. It was confirmed from inspection that in all 25 cases the salary grade and spinal point shown on the starter form matched what had been input into the payroll system. Appendix C Page 3 of 6

11 Salaries Wages System Review Control Evaluation TEST OVERALL AREA OF AUDIT CONTROL 13 All starters should be initiated and recorded B A B promptly. REASONS Deadlines have not been established as input of starters will be undertaken at any time preceding the payment run. 14 The person commencing employment should be bona C B C fide. Procedures are in place to ensure that starter forms are authorised thereby confirming the validity and payscale of the new employee. Payroll Service employees responsible for creating new employees on the payroll system check all starter forms for validity, however the information that they have been provided with to enable the checks to be undertaken is partially out of date. LEAVERS 15 The organisation should comply with all HM Revenue A A A and Customs and DSS regulations. The Payroll Service are notified of leavers. Payroll procedures ensure that the payroll system is updated with leavers information. Once the system has been updated a P45 is generated and a report issued to HM Revenue and Customs notifying them of all leavers within that period. P45s are issued to all leavers. 16 All leavers should be authorised properly. C D D Procedures are in place to ensure that leaver forms are authorised thereby confirming the validity of the termination of employment details. Payroll Service employees check all leaver forms for validity, however the information that they have been provided with to enable the checks to be undertaken is partially out of date. It was found that: In 16 cases the person authorising the leaver form from the employing department was an authorised signatory for starters; In the remaining 9 cases the signatory was either not included on the authorised signatory list or were not authorised to sign new starters; and Only 8 from the 25 contained a signature from a representative of the Human Resources Service. 17 There should be documentary evidence to support an B C C employee leaving a post. Leavers' will only be processed upon receipt of a duly authorised Leavers Form. All forms must be signed by an authorised employee, usually line manager, within the employing department. In 9 cases the leaver forms had been entered into the payroll system after the termination date. The delays ranged between 6 and 26 days. It was confirmed that this was due to delays in receiving the forms from the employing departments. Appendix C Page 4 of 6

12 Salaries Wages System Review Control Evaluation TEST OVERALL AREA OF AUDIT CONTROL 18 All relevant parties should be informed of an B B B employee leaving in order that records may be updated. REASONS Human Resources are notified of all leavers. This information is then used to maintain a central record of Authority employees. The Pensions Officer obtains a report of all leavers during a period who are in the superannuation scheme and notifies the RCTCBC Pension Office of these employees so that action can be taken with regards to their pension. 19 All relevant records should be updated correctly B B B when an employee leaves. The payroll system clearly identifies leavers and their termination dates. All leavers are retained on the system and are identified as 'Terminated'. System reports of leavers can be generated and obtained by system users independently of the Payroll Service. 20 All monies owing to the organisation should be A C C calculated correctly and repaid promptly. Established procedures ensure that balances owed are recovered. Examination of a random sample of 25 leavers from 2010/11 found that: In 10 cases the outstanding balances/details to be paid/recovered on termination of employment had not been completed on the leavers form, this included any annual leave entitlement payable or recoverable; For the remaining 15 the details had been recorded on the leavers forms but they did not include any amounts to be deducted; and The test identified 1 instance where the Payroll Service had mis-calculated a payment made to an employee upon termination of employment. This resulted in an overpayment equivalent to 6 days annual leave at their pay scale being made. Appendix C Page 5 of 6

13 Salaries Wages System Review Control Evaluation TEST OVERALL AREA OF AUDIT CONTROL 21 Employees leaving the organisation should not be C C C paid beyond their leaving date. REASONS The requirement for leavers forms to be submitted prior to termination date has been communicated, however there are instances of non-compliance that may result in overpayments being made. The date for pay to be stopped, as recorded on the leavers form, is the date input onto the payroll system. From the 25 leaver forms selected for testing it was found that in 13 cases the date received by Payroll was recorded on the form. Of these 13 it was confirmed that: In 7 cases the leaver form was submitted to Payroll in advance of the leaving date; In 6 cases it had been received by Payroll after the employee termination date. Previous Recommendations _ B B 24 previous recommendations made and agreed to. 21 priority 2; and 3 priority 3. Our work identified the following: 16 had been implemented (13 priority 2, 3 priority 3); 3 had been partly implemented (3 priority 2); 4 had not been implemented (4 priority 2); 1 have been deemed no longer applicable (1 priority 2). OVERALL OPINION C C C The controls governing the majority of control objectives audited were found to be good or very good, however, the controls governing a number of areas that are fundamental to the overall objective of the audit were found to be satisfactory or unsatisfactory. It has therefore been concluded that whilst there is basically a sound system of control, there are weaknesses, which put some of the system's and Authority's objectives at risk and also that there is evidence that the level of non-compliance with some of the controls may put some of the system's objectives at risk or may leave the Authority open to risk. Appendix C Page 6 of 6

14 Recommendations are categorised on the following basis: Salaries Wages System Review Audit Plan Priority / Key Category Definition 1 Mandatory - Urgent is imperative to ensure that the objectives for the area under review are met. 2 3 Mandatory - Less Urgent Best Practice / Other Recommendations Requires action to avoid exposure to significant risks in achieving the objectives for the area under review. is advised to enhance control or improve efficiency. Key Rec No. Recommendation / Inspection Agency and Inspection/Audit Report Title Start Date End Date Lead Officer Title Salaries & Wages System Review Recommendation The Payroll Manager should contact the employee concerned in order to determine if they have opted out of the pension scheme. Agreed. Internal Audit supplied the name of the employee in question for follow up action to be taken. 3 2 Recommendation To strengthen existing controls surrounding the creation of new employees the Payroll Manager should advise the Head of Human Resources that copies of appointment letters should be submitted to the Payroll Service. Agreed. We will liaise with HR Administration on this matter. We may look to amend the starter form so that it includes a field that requires the signature of HR Administration as verification that the appointment process has been followed. 2 3 Recommendation Every effort should be made by the Business Administration Support Service to collate authorised specimen signatures by the required deadline to ensure that up-to-date authorised signatory lists are maintained. Continued non-compliance from Service areas must be referred to the appropriate Director. Agreed. This issue will be raised with the Assistant Director of Customer Services. 1 4 Recommendation The practice of processing new starter forms countersigned by the Business Services Coordinator should cease immediately. The Business Services Co-ordinator is not authorised to verify the authenticity of employees within other Service areas. In these instances enquiries should be made with the employing Service area and the starter form withheld from processing until a properly authorised starter form has been submitted or confirmation of the authorised signature's validity received. May-11 Sep-11 Jul-11 Immediately Gregg Edwards Agreed. The starter form needs to be reviewed to include a field so that HR Administration can confirm the correct employment process has been followed, however, starter forms will not be processed if they have not been signed by an authorised signatory. Appendix D - Page 1 of 3

15 Salaries Wages System Review Audit Plan Key Rec No. Recommendation / Inspection Agency and Inspection/Audit Report Title Start Date End Date Lead Officer 3 5 Recommendation The Payroll Manager needs to implement management checks to ensure that the Payroll Service procedures for processing 'Leavers Forms' are complied with. Invalid or incomplete forms should be referred to the employing department and should not be processed until legitimate authorisation has been received. Agreed. We will staff regarding procedures for starters and leavers and inform staff that the Payroll Manager will be carrying out periodic checks. 3 6 Recommendation The Payroll Manager should remind departments of the necessity of submitting fully completed and duly authorised 'Leavers Forms' in advance of the employee's termination of employment date. Agreed. We will Managers on this matter and will also look at incentives to ensuring forms are returned. 3 7 Recommendation To assist in the efficiency of processing the payroll the Payroll Manager should consider the introduction of a standard template document to be used by departments when notifying of an internal transfer. Agreed. We will liaise with HR Administration on this matter because it is likely that they will need to inform Payroll of internal transfers. 3 8 Recommendation The Authority should make a decision regarding the process for notifying the teachers pension fund managers of 'starters' and 'leavers' to the teachers pension scheme. Agreed. We will discuss this with HR Administration because Education Staffing are now part of the HR Administration function. 3 9 Recommendation The Payroll Manager should remind staff within the Payroll Service that all leaver forms received must have the date received recorded in order to comply with their internal processes. Sample management checks should be undertaken on a periodic basis to confirm ongoing compliance. Jul-11 Oct-11 Oct-11 Oct-11 Oct-11 Agreed. This will be included in the to be sent to staff on starter and leaver processes Recommendation The approval of the Chief Finance Officer should be sought for the acceptance of electronic timesheets. (Previous Recommendation 2008/09, 2009/10) Jul-11 Agreed. This will form part of a review of payroll processes Recommendation Payroll must confirm with the Chief Finance Officer if individual timesheets, signed by employees, are required or if the current use of schedules certified by authorised signatories is sufficient. (Previous Recommendation 2008/09, 2009/10) Agreed. This will form part of a review of payroll processes Recommendation Payroll should inform departments that overtime claims must contain a declaration that must be signed by the employee confirming the hours worked. (Previous Recommendation 2008/09, 2009/10) Jul-11 Jul-11 Agreed. This will form part of a review of payroll processes. Appendix D - Page 2 of 3

16 Salaries Wages System Review Audit Plan Key Rec No. Recommendation / Inspection Agency and Inspection/Audit Report Title Start Date End Date Lead Officer 3 13 Recommendation Payroll should confirm with the Director of Finance whether overtime should only be claimed on standard Authority overtime forms and not on departmental timesheets use of non-standard claims should be the exception. (Previous Recommendation 2008/09, 2009/10) Jul-11 Agreed. This will form part of a review of payroll processes Recommendation Service Support should contact the appropriate employees to inform them that a self certification has not been received for the period of sickness in question, and ensure that any non-receipt of self certifications is followed up with Manager's within an appropriate timescale e.g. 1 month. (Previous Recommendation 2009/10) Agreed. Jul-11 Gregg Edwards Appendix D - Page 3 of 3