IDEA user group 5 june 2013 - Grant Thronton

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Applications of IDEA:
Auditing Payroll

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Aim
• Understand how IDEA can be used to test payroll
• Share ideas on audit approach
• Share ideas on technique
• Consider benefits of testing payroll in your
organisation
• Create a comprehensive list of payroll tests

3. © 2013 Grant Thornton UK LLP. All rights reserved.
Agenda
1. What do you do?
2. Audit risks concerned with payroll
3. Why use IDEA
4. Concept of payroll data
5. Testing
6. Fraud scenarios
7. Findings
8. Automation of tests
9. Case studies
10. Final questions

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1. What do you do?

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2. Risks concerned with payroll
• Payroll internally or externally
• Large financial amounts
• Integrity of the information
• Security of the information

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2. Risks concerned with payroll
1. An employee obtaining payments to which they are not entitled.
2. An employee directing payments to themselves by creating a fictitious
employee.
3. An employee stealing money directly from the payroll.
4. Tax and other deductions are not calculated correctly.
5. Material misstatement in the financial statements.

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3. Why use IDEA
• Import data from variety of sources (including
outsourced solutions)
• Use scripts for monthly auditing of payroll
• Append monthly files together
• Join tables to allow descriptive information to be
included

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4. Concept of payroll data
• Master data
Employee records – address, bank details,
pay scale
• Transaction data
weekly, monthly, ad hoc payments – wages,
salary, bonus, expenses

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5. Testing
• Analysis
• Calculations
• Exceptions
• Reasonableness
• Gaps and duplicates
• Matching and comparing
• Transaction data

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5. Testing - Analysis
Basic Intermediate Advanced
Summarise and
stratify salaries by
department/grade
Profile employee
ages/years of service
to assist in forward
planning
Summarise and
compare costs for
special pay, overtime,
premiums
Summarise payroll
distribution for
reconciliation to
general ledger
Analyse costs for
special pay, overtime,
premiums

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5. Testing - Calculations
Basic Intermediate
Total gross pay,
net pay,
deductions and
any other value
fields
Check calculation
of gross and net
pay

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5. Testing - Exception Tests
Intermediate
Extract all payroll
payments where
the gross amount
exceeds a set
amount (eg large
salaries)

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5. Testing - Reasonableness Tests
Basic Intermediate Advanced
Pay/grade comparison Sickness & holidays
taken
Tax rates
Hours worked,
overtime claimed
Report activity on
records for new or
terminated employees
Find changes in key
payroll data, such as
gross pay, hourly
rates, salary amounts
Date of birth (over 65,
under 16)
Identify records with
missing information
(National Insurance
number etc)

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5. Testing - Gaps and Duplicates
Basic
Duplicate employees (National
Insurance, Employee numbers,
addresses) on payroll file
Duplicate bank account details
Duplicate names and date of
birth
Duplicate payments

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5. Testing - Matching and Comparing
Basic Intermediate Advanced
Compare time-card
entries and pay to
payroll and indicate
variances
Join payroll
transactions file, to
payroll master to
determine if there are
"ghost" employees on
the payroll
Comparison of payroll
file at two dates to
determine recorded
starters and leavers,
and changes in pay
Compare supplier
addresses/bank
accounts to employees
to identify conflict-of-
interest
Determine if payments
have been made to
leavers after they have
left.

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6. Fraud scenarios
Phantom employees
Supplier payments
Collusion
Tax
False expenses or hours worked

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7. Demonstration using IDEA

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8. Automation of tests
• IDEA script can be used to automate payroll tests
• Smart Analyzer
• Manual process as data and criteria varies hugely
for GT work

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9. Case studies
• Facilities Management company –
70,000 employees, £900m annual payroll costs
• Retailer company - 22,000 employees,
£150m annual payroll costs

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10. Final questions
Thank you for your time