Payroll Cycle

Assertion Payroll (COT)

Accuracy  Confirm that the gross salary used in the payroll is

authorised in terms of company’s remuneration policies
and signed salary notifications in the employee’s
personnel file.
 Trace any additional (bonuses) amounts paid to the
employee to source documentation and inspect the
source documentation for a valid authorising signature,
e.g. the financial director approving the payment of an
incentive bonus.
 Inspect any overtime reports signed by the foreman or
production manager for the period selected, and confirm
that the rate used for overtime complied with company
policy and labour requirements, e.g. overtime rate is
normal time and a half.
 Compare all deductions, e.g. PAYE, pension, medical aid,
to the appropriate rules to confirm that the correct
amounts were deducted.
 Test the casts and the arithmetical accuracy of the payroll
as appropriate
 Trace amounts posted from the selected payroll to the
relevant accounts in the general ledger.

Procedures to confirm that employees on the payroll are not fictitious (Occurrence assertion)

1. Inspect the documentation in the employee’s personnel file, e.g. 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.
2. Perform a positive (physical) identification of the employee where possible.
3. Enquire of senior personnel to confirm (in writing) that specified individuals are employed in
their section or division.
4. Inspect returns to outside entities for the inclusion of employees selected in the sample, e.g.
PAYE reconciliations submitted to SARS, or medical aid contribution returns.
5. Use audit software to scan the employee master file for “error conditions” which may
indicate fictitious employees, e.g.
Duplicated or missing identity numbers
Duplicated or missing tax reference numbers
Duplicated bank accounts
Duplicated staff employee numbers.
 6. 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 master file on the correct date (if an employee leaves, but is left on the payroll, he
is in effect a fictitious employee).

Completeness

Do not forget to identify any illegal workers (minors, illegal foreigners) who may be excluded from
payroll

Analytical procedures:

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
 Deductions paid over to third parties, month to month.

Ratio and trend analysis, e.g.

 Salaries as a percentage of total expenses

 Wages as a percentage of production costs
 Wages in relation to production (output).