Controlling Your Payroll

A new employee is needed. The manager asks the Bookkeeper to post an ad for the position. She screens the resumes and sends the manager the ones she believes are most appropriate. Once the manager has interviewed the candidates and made the selection, the Bookkeeper puts the new employee into the payroll system. You, the Owner, do not worry about the process because the Bookkeeper handles everything.

The Bookkeeper sends the new hire information to the Payroll Processing Company to be added to the Employee Master File. On Monday, the Bookkeeper enters the number of hours worked for each employee during the prior week and transmits the data to the Payroll Processing Company. On Wednesday, the Bookkeeper receives the payroll package containing the payroll checks. She reviews the payroll reports for accuracy and distributes the checks on Friday. At month end, she reconciles the payroll bank account. Everything works as it should. No worries for you.

But, what if the Bookkeeper decides to add a fictitious employee to the payroll system and deposits the check into a bank account that she controls? What if she adds additional hours for a friend or herself or increases the pay rate? What if she makes an honest mistake that adds an extra digit to the pay check of an employee and doesn’t review the payroll before distributing the payroll checks? How would you know? If you don’t review the payroll, you won’t know.

The payroll package from the Payroll Processing Company should be addressed to you, not the Bookkeeper. When you receive the package and open it, go through the payroll checks to ensure the amounts look reasonable. Scan the number of hours worked on the Payroll Register for reasonableness. Pay particular attention to the Bookkeeper’s hours and rate. This process should catch any large unintentional errors and large amounts of inflated hours.

The payroll package includes a series of reports, including a Personnel Change Report. This report provides information on any changes made to the Master File. It is a key control in ensuring awareness of all new hires and pay rate changes. Review this report carefully. Make sure you authorized any pay rate changes. If there are new hires on the report with whom you are unfamiliar, ask the manager to meet the new employee. Initial the report to document your review. This process should catch fictitious employees and unauthorized pay changes.

The payroll bank account reconciliation should be completed shortly after month end. Normally, there are no outstanding checks because the Payroll Processing Company debits your bank account for the amount of net pay. They handle any outstanding checks and file unclaimed wages with the State. Your job is to review the payroll account reconciliation and initial it, documenting your review. Ask the bookkeeper to explain any old items and make sure they are resolved promptly.

Payroll is one of the highest costs in your restaurant, accounting for 30 – 40% of sales. Assure yourself that all payroll costs are proper.

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