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Auditing for Continuous Process Improvements

Auditing for Continuous Process Improvements. By Raeann Hofkin, CPP PA Statewide Conference September 2013. Raeann Hofkin, CPP. Biography: American Payroll Association 2012 Special Recognition Award Recipient Current Vice President Cordova First National Chapter

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Auditing for Continuous Process Improvements

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  1. Auditing for Continuous Process Improvements By Raeann Hofkin, CPP PA Statewide Conference September 2013

  2. Raeann Hofkin, CPP Biography: • American Payroll Association • 2012 Special Recognition Award Recipient • Current Vice President Cordova First National Chapter • Online Study Group Facilitator, since 2001 • Contributing Author Workforce Asset Management Book of Knowledge, Wiley Publisher 2013 • Contributing Author Controller’s Report Monthly Newsletter • Authored the Quick Reference to Payroll Compliance, 2010 and 2011 editions • Pennsylvania Payroll Professional Award Winner - 2010 • Southeastern PA Chapter President 2005-2008 • Meritorious Service Award Winner 2008 • Donald W. Sharper Education Grant Winner – 2006 & 2013 • Certified Payroll Professional since 1999 • 27+ years payroll/HR experience • Payroll management concentrated in pharmaceuticals, healthcare, manufacturing, customer service call centers, and the academia industries both domestic and international.

  3. Agenda Don’t believe everything you hear Not hearing anything, doesn’t mean there is nothing wrong. Just because its always been done that way, doesn’t mean it’s being done correctly. Don’t assume anything. The quality of your answers are directly dependent on the quality of your questions. Interactive – I don’t all have the answers to everything, we all have different experiences, and we can all learn something from everyone. 

  4. Primary Purpose • Ensure compliance with company policies and procedures. • Ensure enforcement of company policies. • Ensure compliance with Federal, State, and Local laws. • Review procedures for areas of improvements; • Automation • Elimination

  5. General Observations • The overall pay structures are complex which contributes to inefficiencies • In calculating payroll and, • Errors in employee’s pay. • The payroll process is affected by several departments, locations, and functions within the company including the HR, Benefits, Payroll and Time and Attendance, etc. • Terminology/Communication

  6. Discussion Points • Significant inefficiencies • Multiple errors require much labor to correct • Delay in relevant information • Non integration

  7. Complex Payroll Structure Types of employees Payment Schedules Amount of Earnings Codes, Deduction Codes, Memo Codes, Codes in general Union Contracts Special Calculations (some manual) Attendance/PTO policies Bonus Pays Compliance constantly changing

  8. Benefits of Reducing Complexity Reduction in errors Decrease in time spent calculating retroactive pays or collecting overpayments Saves payroll labor dollars Reduction of special calculations Standardization Increase accuracy Eliminate manual processes

  9. Technological Limitations • System limitations • Lack of technology • Old technology • Not in the budget to upgrade • Misuse of technology • Not using all features • Not aware of all features • Lack of formal training • Not available • Not in the budget • Technical manual • Self inflicted limitations • Lack of integration between two systems • Manual workarounds/input

  10. Lack of Payroll Process • Staff limitations • Missing information • Convoluted pay structure • Lack of formal training • Self taught • Not available • Not in the budget • Manual to technical • Not supported by vendor • Attitude • “Always been done this way” • “Things will never change”

  11. Potential Roadblocks • Requires human and financial resources • Time and effort investment • Past history to measure future success • Lack of strategic direction • Environmental and/or economical considerations • “That’s the way it was always done” • If no one knows why something is done a certain way, then figure out what is done and work backwards. • Take good notes • Communication – Banana Theory Exercise

  12. Communication • Communication/terminology • Perception is reality • Pull out handout – Exercise time

  13. Challenges • Unions • Upper Management • Lack of Budget • Human capital • Lack of resources • Technology (or lack of it) • Employee push back • Lack of motivated employees • Ongoing Training • Ongoing maintenance

  14. Solutions • Prepare a list general goals for each category • Input • Output • Reports • What do you do well? • What needs improvement? • Start here

  15. Sample Goals • High Level – each company will need to create a customized list….

  16. General Goals • Analyze activities, processes, and procedures • Analyze the interpretation of company policies • Analyze the enforcement of company policies • May involve discussions with various employees/depts. • Improve productivity • Improve efficiency • Ensure compliance • Increase accuracy

  17. Specific Goals Compliance Ensure accuracy of paychecks Eliminate off cycle checks, adjustments, overpayments, etc. Automation Ensure calculations & deductions are working correctly. Payroll transactions accurately reflected in GL

  18. Comprehensive Review • All payroll processes • Input • Output • Reports • Goal is to simplifying the process • Ensure they add value • Maintain a strong commitment to quality and customer service • Eliminate what doesn’t work

  19. Input • Process for input • Manual • Automated • Audit input • Garbage in, garbage out, catch errors before processing payroll • Rejected errors – find out why • Get to the root of the problem

  20. Output • Error rates • Multiple sources • Corrections may involve many people in various departments • Get to the root of the problem • Ultimately payroll/HR is responsible to fix errors • Investigate adjustments/exceptions • Reconciliations

  21. Reports Provided Who? What? Why?

  22. Addressing Root Cause • Hold employees accountable for deadlines and lack of attention. • Exceptions quickly turn into standard process • Payroll constantly in ‘reactive’ mode rather than proactive mode • Provide guidance/setting policy • Create off cycle/Adjustment policy • Training repeat offenders

  23. Recommendations • Determine underlying mission of Payroll. • Core and non-core activities • Reduce the complexity of the pay structure. • May need to negotiate with unions • Improve processes to • Reduces error rate, which • Reduces number of employee inquiries • Automate where possible • Formal Training on current systems • Eliminate what’s not necessary

  24. Specific Recommendations • Communicate any new or updated company policies. • Website, emails, newsletters, and training • Standardization of guidelines and policies for all departments, locations, divisions, regions. • New hires, terms, adjustments, deadlines, timesheets, etc. • Develop/Enhance training • New hires, approvers, managers, policy enforcers

  25. Summary of Recommendations Should be customized to your company

  26. Action Items • Enhance workflow between departments • Reduce duplicate entries • Hold employees accountable • Time and attendance entries • Deadlines • Create better documentation for key functions • Identify most troublesome error/issue for YOUR payroll.

  27. Action Items – Cont’d • Communicate project purpose and value throughout the department. • Ensure buy in • Direct reports • Senior Management • Develop/Determine your budget • Zero? – low lying fruit • Unlimited – possible outside consultant • Develop request for proposal • Gather all forms used in payroll processes

  28. Action Items – Cont’d • Develop Strategy to integrate payroll, benefits, HR, and time and attendance. • Information technology plan • Educate Senior Management of benefits • Define scope and objectives • Consider Employee Self Services and/or outsourcing selected payroll activities.

  29. Improve Error rate • Develop method of tracking number of exceptions, adjustments, and errors • Set realistic improvement goals • Establish grading scale to determine performance by location. • Friendly competition • Establish consequences for bad performers • Carry through with consequences • Implement procedures to instill proactive initiative • Get employees involved

  30. Improve Error Rate – Cont’d • Create proactive troubleshooting communication that documents the causes for common errors. • Allow employees to determine cause and resolution of errors

  31. Document Current Procedures • Take stock of current processes • You need to know where you are • Visualize what you want the processes to look like • Map a plan to get there

  32. Current Process • Payroll Process • New Hire/Term/changes • Monitoring time and attendance • Calculating gross to net • Distributing net pay • Calculating and reporting retirement • Collecting overpayments • Vacation, sick, PTO accruals • Disbursing withholdings • Taxes • Garnishments • Retirement

  33. Current Processes – Cont’d Benefits Taxes General Ledger Month End Quarter End Year End Training

  34. Mapping Process • Determine the scope • Beware of scope creep • Task plan • Identify current processes • Visualize success • What does it look like to you? • What does it look like to your boss? • Start asking probing question…. • Break it down into categories, tasks, procedures

  35. Analyze Off Cycle Checks • Labor intensive & Time consuming • Research & Analyze • Calculate & review • Processing correction • Track down check signer • What is the root cause? • Delays in paperwork – Why? • New hires not input into system timely – Why? • Timesheets not approved – Why? • Data entry errors – Audit? • Special Request – Bonus, late paperwork, etc.

  36. Addressing Root Cause –of Off Cycle Checks • Payroll and HR work to address delays • Processing terminations • Missed deadlines • Holding employees accountable • Realistic deadlines • New hire process • Can paperwork be completed prior to start date? • Does the current processes conflict with payroll processing policies or compliance? • Communication!!!

  37. Probing Questions - Overpayments • What is the procedure to process overpayments? • How is this policy interpreted by direct reports? • How is this policy enforced? • Is the perception and enforcement correct? • Is there a policy or guidance to collect overpayments? • Is there a process in place to identify the root cause in order to address any holes in the current policy? • Do you address who is to notify payroll of the overpayment? • Most adjustments are not due to payroll errors • When termed employee does make a repayment, do you have a process in place to adjust the taxable earnings? • Is the perception and enforcement correct? • Does the repayment cross over years? • What is the process to adjust W2? • Is there a process in place if overpayment can not be repaid? • Is there a process to send the employee to collections? • What is the process for overpayment notifications that go unanswered?

  38. Probing Questions Payroll Processes • Independent Contractors • Don’t assume there aren’t any • Exempt Employees • Correctly categorized? • Any home agents? • Think state and local tax nightmare • Do you have hourly employees with more than one rate? • How is their OT computed? • Are all exception payments authorized? • Employees claiming exempt? • Pay frequencies

  39. Probing Questions Payroll Audit Process • What are your audit procedures? • Who performs the audits? • Does everyone interpret and perform the same process? • Does the employee understand why the audit is performed “this way”? • Is there a better way to perform the audits? • Are the particular audits performed at the correct time? • What good does it do if the payroll is already processed? • Do you check taxable wages before finalizing payroll?

  40. Probing Questions – Audit Processes Cont’d • Do you compare the final payroll to a previous payroll (sanity check). • Are the numbers way off or pretty close? • Bonus pay would differ • PTO sell back would differ • 3rd pay of the month? • First pay of the year? (tax changes, unemployment taxes) • Who reviews audit trails? • Ensuring person making change has the authority to make the changes. • Are the changes correct?

  41. Probing Questions Payroll Reconciliations • What are your reconciliations procedures? • Who performs the reconciliations? • Does everyone interpret and perform the same process? • Does the employee understand why the reconciliation is performed “this way”? • Is there a better way to do it? • What is the timing of the reconciliations? • Per pay, monthly, quarterly, yearly, some other timeframe?

  42. Probing Questions - PTO • What is the process to request time off? • Does everyone interpret and perform the same process? • Does the employee understand the process? • Is there a better way to do it?

  43. Probing Questions - Reports What reports are you providing to management? Who gets these reports? Why are you providing these reports? Are you providing paper copies or electronic files? How often are you providing the reports?

  44. Probing Questions Data Privacy What is your process for ensuring data privacy of personal information? Is the payroll system adequately protected from misuse or unauthorized access? Do you have a data privacy policy? How do you process employee verifications? Do you have a clean desk policy?

  45. Probing Questions - Benefits • How are benefits deductions set up? • Do they roll over or reset every year? • Are all the locations receiving standard benefits? • What is the FMLA process and how is FMLA tracked? • Pretax deductions correctly calculated? • Are Holiday and PTO payments valid within company policy and legislative requirements? • What’s in the summary plan document? • What are the eligible wages? • What is excluded from matching funds? • Are retirement deductions accurately calculated, deducted, and paid to the third party vendor correctly? Timely?

  46. Probing QuestionsTime and Attendance • Do you allow rounding? • When does the pay period start? End? • Day of the week • Time of day • What is the payroll frequency? • Does the punch in or punch out determine what day the hours from that shift are reported? • Do you have a procedure for daylight savings?

  47. Probing QuestionsTime and Attendance – cont’d What are the standard shifts? What are the exceptions? Do you have a seniority system? Do you have an attendance points system? Do you allow shift swapping? Do you have a mill turn? Do you have shift differential?

  48. Probing Questions – Physical Payouts • What is your process for physical payouts? • Who performs the physical payouts? • Does everyone interpret and perform the same process? • Does the employee understand why the physical payout is performed “this way”? • Is there a better way to do it? • What is the process if a ghost employee is discovered? • What is the timing for the physical payouts? • Yearly? • Direct Deposit audit?

  49. Probing Questions - Unions • What is in the contract? • Who is in the union? • What is the contract period? • Does everyone interpret the contract the same? • What is the employees interpretation? • What is the administration interpretation? • How does payroll handle the unique requirements? • How does the time and attendance handle the unique requirements? • Manual or automated? Any outliers? • Seniority? • Breaks in service? • Point system?

  50. Probing Questions Year End • What is your process for recording the cost of healthcare on W2’s? • What is your process for identifying adjustments? • Relocation • Auto Allowance • ESPP • Imputed Income – GTL • Stock Options

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