Payroll Audit is one of the significant, traditional areas of internal audit. Payroll usually constitutes a major component of a company's expenses (government ministries, companies, non-profits, government entities, local authorities, academic institutions, etc.), and is a complex item that includes many provisions and actuarial calculations and is subject to many labor laws.
Among the subjects covered during a payroll audit are the correctness of wage calculations as per the labor agreements, examination of payroll-related payments, non-existence of fictitious employees in the payroll system, money transfers to institutions (income tax authority, National Insurance, pension funds), aggregation and reporting of vacation, sick pay and severance pay.
The performance of an initiated audit by an employer will lead to a reduction, and even a cancellation, of penalties imposed by the Ministry of Economics – hence the importance of performing regular payroll audits.
Payroll auditing is a unique field and our Firm has expertise and vast experience in the field.
Audit of Salary Fraud
Examined within the scope of salary fraud, among others, are comparisons of payroll slips to personal or collective agreements, exceptional payments that were identified, the manner of reporting employee attendance, utilization of vacation, sick leave and severance pay, employee hiring, fictitious employees identified in the system, fictitious payments of salary and related expenses that were identified.
Payroll Commissioner in the Finance Ministry
The Payroll Commissioner in the Finance Ministry is responsible for some eight hundred corporations and authorities in the economy.
Annually, reports are submitted to Knesset members by the Payroll Commissioner regarding payroll expenses in government ministries and public bodies. These reports relate to local authorities, municipal corporations, government companies, supported bodies, religious councils, municipal associations, health corporations and other corporations.
By means of four outside accounting firms, which won public tenders, the Commissioner performs a payroll audit in those corporations and authorities, so as to ensure proper conduct according to the law and labor agreements in everything related to payroll expenses and employee rights. Examined within the scope of the audit is compliance with the employment agreements approved by the Commissioner, identification of salary deviations and preparation of a detailed report that serves as the basis for refund claims for overpaid salaries.
Audit of Wages to Outsourced Workers
In June 2012, the Law to Increase Enforcement of Labor Laws, 2011, took effect. The Law's objective is to increase and streamline the enforcement of labor laws, with the essential purpose of protecting outsourced workers employed in the security, cleaning and care giving industries.
The new law's innovation is that responsibility for enforcement of labor laws now also lies with the party hiring the workers, and not only the direct employer, an unprecedented measure that expands responsibility for safeguarding employee rights. The Law includes imposition of civil and criminal liability on the hiring party, and requires measures to be taken to increase the enforcement of labor laws of outsourced workers.
In view of the importance of the subject of payroll, the Law prescribed the regulatory authorities for employee rights and specifies financial penalties for the employer and the hiring party; financial penalties for the employer can range between NIS 5,000 and NIS 35,000. As part of the trend of transparency, the Ministry of Industry and Trade will publish details on its website regarding the imposition of financial penalties, including the amount, nature of the violation, details pertaining to the violator, etc.
The Law encourages employers and hiring parties to obtain protection by self-examination of compliance with labor laws through a certified salary inspector.
Our Firm has vast experience in Internal Audit and in Payroll Audit, and, for many years, has performed Payroll Audits of outsourced workers for various bodies, such as government ministries, corporations and institutions, according to the law. The examinations performed by the Ministry include testing of provisions and social welfare payments, labor and service-provider agreements, correctness of salary calculations, compliance with the provisions of the Work and Rest Hours Law, Annual Vacation Law, Minimum Wage Law, and others.
Performance of the Payroll Audit for outsourced workers on behalf of the hiring party removes criminal liability from the hiring party if deficiencies are revealed in the terms of employment of the outsourced workers.
Personal obligation of officials of local authorities
Our Firm has performed forensic audits for many years on behalf of the Interior Ministry regarding the personal obligation of an official in local authorities. At the end of the audit, an audit report is prepared, and according to its findings, officials in local authorities are required to make restitution.