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Creating an Effective HR Shared Services Audit Program

Payroll is a process that touches every employee multiple times a year, with a distribution of funds that make it one of the largest expense categories for any business.  The Payroll audit process, while an important control mechanism, needs to be efficient and effective, without negatively impacting the end goals of accurate and timely payrolls and a positive employee experience.

Peeriosity’s Payroll research area recently hosted a PeercastTM discussion that featured a large global company that outsources much of its Payroll operations to various third parties, while retaining overall ownership for the Payroll process in-house, including the design and administration of the Payroll audit program.

Categories of Payroll Controls discussed on the Peercast included:

  • User Access and Segregation of Duties
  • Variance Analysis and Reconciliations
  • Privacy and Security Controls
  • Business Partner Approvals
  • Exception Analysis
  • Fraud Risk Controls

For the Payroll Audit Program, the transactional review has been transferred to the third parties to review items keyed by the Payroll team, conduct fraud, exception, and tax identification number audits, and audits of time and attendance exceptions.  Over time, they have transitioned to a 25% sampling for some processes, with an increased reliance on specialized reports designed to identify process exceptions.

A key lesson learned when redesigning the Payroll Audit program to integrate smoothly with global locations and third-party vendors was the need for business partner validation and approval to ensure accurate payroll processing.  For each business to validate payroll results against source data and provide required approvals, there needed to be clearly defined roles and responsibilities that were agreed to with each business partner.  To accomplish this, working sessions were held with each business partner that included a discussion of the payroll process and current controls in place, with a discussion of potential gaps.  Once there was a clear understanding of the process, there could be greater reliance on the independent review by the business partner prior to their approval and signoff.

In addition, formal reviews are scheduled twice a year with each business partner to ensure continued understanding of requirements and with the opportunity to discuss the process to ensure a high level of collaboration and responsiveness by the Payroll team.

An iPollingTM question asked about the trend at member companies over the last several years in terms of the time and resources that are devoted to the Payroll audit process.  The results were slightly weighted toward companies that had seen a slight or significant increase in resource requirements.  Here are the details:

general trend of the company over the years in terms of resources allocated to Payroll Audit Program ipolling

The follow–up polling question asked about the most significant opportunities that existed to improve the efficiency and effectiveness of the Payroll audit process.  Here the results were clear, with 44% indicating the greatest opportunity was to improve technology and related systems tools and reporting capabilities.  An additional 22% identified the need for more resources to support better utilization of audit findings to make process improvements to eliminate the source of deficiencies, and 17% cited the need for overall improvements to the operational audit process.

most significant opportunities in Payroll Audit Program ipolling peeriosity

Below are several of the comments from iPolling participants:

  • We have just gone through an audit from our corporate audit team. It was tough, but we came out well.
  • Corporate maintains this process, with very little exposure to our Payroll team.
  • It is an ongoing effort to evaluate current audits and implement more effective audits.
  • We do not always get the IT support that is needed for the audits. We would benefit from an upgrade to our reporting tools to reduce our reliance on IT.
  • I believe there are opportunities for the coordination of efforts between the internal and external auditors. I realize the need for independence and that they report to different stakeholders; however, there are definitely efficiencies to be gained by greater coordination.  Improved coordination will also reduce disruptions on the Payroll teams.
  • Although our time and resources have somewhat increased, we are looking to create efficiencies in our audit process.

When was the last time your company reviewed your Payroll audit process?  Are you working closely with your business partners to ensure they have the knowledge and training they need to complete an independent validation and approval of Payroll results?

Who are your peers and how are you collaborating with them?


“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.

 “iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.

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