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GPC: Payroll Accounting, Controls and Reconciliation

GPC · Work through your exam, one topic at a time.

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Payroll Accounting, Controls and Reconciliation

Payroll Accounting, Controls and Reconciliation tests whether the numbers leaving payroll can be tied to the general ledger and the bank, and whether the controls around that tie-out would satisfy an auditor. Questions are calculation- and control-design based.

The accounting chain

  • Payroll register: gross, deductions, employer costs, net.
  • Journal entry: debit salary and employer cost accounts; credit net pay payable, statutory liabilities and benefit payables, analysed by cost centre.
  • Funding: the cash movement matches net pay plus liability payments.
  • Reconciliation: register to GL to bank, plus a balance sheet control account for each liability.

Controls examiners reward

  • Three-way match between the register, the GL journal and the funding file.
  • Control totals and headcount reconciliation before and after transmission.
  • Segregation of duties between preparation, approval and reconciliation.
  • Variance analysis month-on-month and budget-versus-actual, with documented explanations above a threshold.
  • Suspense accounts cleared within a defined period and never allowed to age.

Worked example

Payroll register gross is 2,450,000 and net is 1,780,000. The GL shows salary expense of 2,462,000. The 12,000 difference equals the employer pension contribution, posted to the salary account instead of the benefits account. Reasoning: the register is right and the mapping is wrong. The correction is a reclass journal, a check of the mapping table for other cost centres, and a control improvement so employer contributions are reconciled as a separate line. Reconciling only net pay would have hidden the error entirely.

Traps

  • Reconciling bank movement instead of gross to GL.
  • Posting an entire country to one cost centre and losing allocation accuracy.
  • Allowing suspense or clearing accounts to carry balances across periods.
  • Accepting a provider report without recalculating a sample.
  • Ignoring period-end accruals and reversals, which double-count expense in the following month.