Payroll Audit Checklist
Prepare for payroll audits with a systematic approach covering documentation, calculations, and compliance. This checklist helps you organize employee files, verify tax withholdings, reconcile quarterly filings, and test internal controls. Covers everything auditors examine including timekeeping accuracy, benefit deductions, wage calculations, and tax deposits. Most audit failures happen from missing documentation, not actual errors. Track 12 critical areas from system setup to post-audit remediation. Used by accounting teams managing payrolls from 25 to 500+ employees across manufacturing, healthcare, and professional services.
Payroll System Setup
□ Payroll system configured correctly
□ Company information accurate
□ Tax IDs verified
□ Bank accounts confirmed
□ Pay schedules established
□ Earnings codes defined
□ Deduction codes set up
□ Tax tables current
□ GL mapping correct
□ Security roles defined
□ Audit trails enabled
□ Backup procedures active
Employee Master Data
□ Employee records complete
□ Personal information accurate
□ Tax withholding forms current
□ Direct deposit information verified
□ Pay rates authorized
□ Deductions documented
□ Benefits enrollment accurate
□ Time tracking assignments correct
□ Department codes accurate
□ Job titles current
□ Status changes processed
□ Termination dates recorded
Time & Attendance
□ Time tracking system functioning
□ Time cards/sheets approved
□ Overtime calculated correctly
□ Shift differentials applied
□ Holiday pay accurate
□ PTO tracked properly
□ Leave balances correct
□ Absence reporting complete
□ Time adjustments documented
□ Approval workflow followed
□ Exception reports reviewed
□ Documentation maintained
Payroll Processing
□ Processing schedule followed
□ Time data imported correctly
□ Calculations accurate
□ Gross pay verified
□ Deductions calculated properly
□ Net pay correct
□ Tax withholdings accurate
□ Garnishments processed
□ Manual checks documented
□ Void checks controlled
□ Adjustments approved
□ Reports reviewed
Tax Compliance
□ Federal taxes calculated correctly
□ State taxes accurate
□ Local taxes applied
□ FICA withholdings correct
□ Medicare calculations accurate
□ Tax deposits timely
□ Quarterly returns filed
□ Year-end forms prepared
□ W-2s issued timely
□ 1099s processed
□ Tax notices addressed
□ Compliance maintained
Benefits & Deductions
□ Benefits deductions accurate
□ 401(k) contributions correct
□ Employer matches calculated
□ Insurance premiums current
□ Garnishment calculations correct
□ Union dues processed
□ Voluntary deductions authorized
□ Pre/post tax classifications correct
□ Benefit changes processed timely
□ Reconciliations performed
□ Vendor payments accurate
□ Documentation complete
Payroll Distribution
□ Direct deposits processed
□ Pay cards loaded
□ Physical checks secured
□ Check stock controlled
□ Signature authority proper
□ Distribution documented
□ Unclaimed wages handled
□ Stop payments processed
□ Reissued checks tracked
□ Escheatment compliant
□ Documentation maintained
□ Security preserved
Reconciliation & Reporting
□ Payroll register reviewed
□ GL reconciliation performed
□ Bank reconciliation completed
□ Tax liability reconciled
□ Benefits reconciled
□ Quarter-end reconciliations done
□ Year-end reconciliations complete
□ Variance analysis performed
□ Exception reports reviewed
□ Management reports prepared
□ Audit reports available
□ Documentation filed
Compliance & Controls
□ Segregation of duties enforced
□ Authorization controls active
□ System access restricted
□ Change controls followed
□ Documentation requirements met
□ Retention policies followed
□ Privacy protected
□ Audit trails reviewed
□ Internal controls tested
□ Compliance verified
□ Policies followed
□ Procedures current
Special Payments
□ Bonuses calculated correctly
□ Commissions accurate
□ Severance payments proper
□ Final paychecks compliant
□ Expense reimbursements processed
□ Relocation payments handled
□ Stock compensation tracked
□ Imputed income calculated
□ Grossed-up payments correct
□ International payments compliant
□ Documentation complete
□ Approvals obtained
Audit Trail & Documentation
□ System audit trails active
□ Changes documented
□ Approvals retained
□ Supporting documentation filed
□ Reconciliations documented
□ Error corrections tracked
□ Adjustments explained
□ Reports archived
□ Retention schedule followed
□ Access logs reviewed
□ Security incidents documented
□ Compliance documented
Post-Audit Actions
□ Findings documented
□ Root causes identified
□ Corrective actions planned
□ Process improvements identified
□ Training needs assessed
□ System enhancements considered
□ Controls strengthened
□ Procedures updated
□ Follow-up scheduled
□ Management informed
□ Remediation tracked
□ Success measured
How the Payroll Audit Checklist works
Enter your company size, payroll system type, and last audit date. Specify your state tax requirements and any union agreements. The system generates audit preparation tasks organized by timeline and priority. Get specific documentation requirements, testing procedures, and reconciliation schedules. Includes sample audit trails, variance analysis templates, and compliance verification steps. Track completion across departments and generate audit-ready packages.
Payroll audit findings cost companies an average of $18,000 in back taxes, penalties, and professional fees. About 40% of small businesses incur IRS penalties each year for payroll errors. This checklist reduces audit prep time from 3 weeks to 5 days by organizing documentation systematically. Prevent compliance issues that trigger investigations and protect your reputation with government agencies and employees.
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