How Cities Can Monitor and Improve the Payroll Process

​​Recently, I was engaged to audit the effectiveness and efficiency of a City’s payroll process. I asked the payroll clerk whether employees submitted timesheets on time:

Clerk: We get about 95% of the timesheets on time.
Me: The 5% you don’t get on time is about 50 timesheets. Is it the same employees each month who are submitting late?
Clerk: Yes, I can tell you in advance exactly who will not submit their timesheet until I call them.
Me: Are there any consequences for employees who continually submit timesheets late?
Clerk: No. I used to tell their supervisor, but nothing ever happened.
Me: Do you escalate it to their manager, the Finance Director, or City Manager?
Clerk: No.
Me: Do you keep a list of every time a timesheet is late so that you can get city management’s help with this problem?
Clerk: No.

​This is an example of a city that is experiencing a common inefficiency in its payroll process – late timesheet submittal. 
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Having an inefficient payroll process can be costly and burdensome for a city to manage.
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The main negative consequences of payroll processes are:
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1. It takes more manpower to process payroll every pay period.
2. It increases the risk of being late paying payroll.
3. It fails to take advantage of available technology.
4. It encourages continued poor communication between Payroll/Finance, HR, and departments.
5. It fails to follow (or it highlights the inadequacies of) written payroll policies and procedures.

Unfortunately, the city in the example above is not doing anything to address this inefficiency; they are just finding ways to work around the problem. Worse, managers in the position to be able to improve the situation are apparently not even aware of the problem.
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Payroll is a complex business process requiring the cooperation of all employees, and with many continually changing elements (e.g., new laws, accounting standards, policies, technology, stakeholder expectations, etc.). Because of this, the effectiveness and efficiency of the payroll process (like any complex process), is deteriorating unless efforts are underway to improve it.

How to improve the payroll process?

One good way to monitor whether your payroll process is improving or deteriorating is to keep an error log. Every transaction that causes personal intervention should be logged and later reviewed to identify trends and to develop action plans to improve significant recurring inefficiencies. This error log should be simple enough to maintain and include the following:

1) just enough information to allow the transaction to be located in the accounting records; and
2) an error code to allow sorting of errors by type.

​For example, error codes may include:

• Timesheet not received by deadline
• Timesheet incorrect (mathematical or account coding error, or not signed)
• Leave time (vacation, sick, holiday) incorrect
• Pay amount calculated incorrectly (including overtime, termination pay)
• Payroll Change Notice not accurate or not complete
• Incorrect classification of employee (exempt vs. non-exempt, employee vs independent contractor)
• Incorrect withholding or deduction

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Click the screenshot image below to view and download a sample payroll error log (in Excel format).

​The error logs should be summarized quarterly and examined by Finance management for trends. Any recurring errors are evidence of the need for improvement of either procedures or compliance with procedures.

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If you have more questions about the payroll process or error logs, feel free to reach out to Kevin directly:
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kharper@kevinharpercpa.com
(510) 593-5037