Having processed payrolls for multiple clients over many years one of the things we have noticed is that often a reconciliation is not performed (or not performed well) between the processed payroll, the actual payments made to employees and third parties; and the general ledger recorded in an employer’s books.
This lack of a solid reconciliation occurs for a number of good reasons:
|•||Confidentiality – the finance team performing the recons are not privy to detailed employee information (and senior finance don’t have the time to do the recons themselves);|
|•||Understanding – some of the issues that arise in payroll can be confusing/complex either from an HR/tax perspective or from an accounting perspective;|
|•||Communication – the payroll may be processed by HR, but nobody communicates with the person doing the recon to explain why specific transactions have taken place;|
The downside to either no recon being performed or a recon being performed badly leads to a number of risks for the business from an accounting perspective:
|•||Leave and bonus provisions are not recorded accurately|
|•||The general ledger may balance, but employer contributions and fringe benefits (double sided entries) may not have been coded and do not appear on the general ledger|
|•||The general ledger may assume that all nett pay and third party payments have been made and reflect no liability whereas in reality some payments may not have gone through properly (e.g. garnishees) or where payments have been deliberately withheld until an issue is resolved|
|•||The balance sheet may not accurately reflect loan accounts, SARS liabilities (incl ETI) and employees with negative net pay (never recovered)|
We would highly recommend employers perform a reconciliation between their payroll, general ledger and EFT payments. This is a critical control. Our accounting team is available to assist with this to offer a confidential, professional service, should you wish to take this route.