Case Study - Fixing Inaccurate Payroll Journals

Scene setting

A US based legal firm has operations in 10 other jurisdictions including France. The payroll headcount in France was around 30 employees.

The client felt that the payroll journal being produced by their payroll provider was not reflecting the true picture. They were confident that the correct monies had been disbursed to all statutory authorities but nevertheless felt the journal was not working correctly.

We were instructed to undertake a comprehensive review to prove the system outputs.

The action

After an in-depth analysis of all reports we concluded that items were indeed missing but it was very difficult to identify exactly what.

We discovered that certain reports when run by different personnel returned different values, and concluded that nothing on the reporting system could be relied upon bar the employees payslips.

Using the payslip information, we were able to re-build the journal and discovered that whilst balancing journals were being produced, there were a number of scenarios where the balancing journals had only been produced because contra debit and credit entries were being posted to the same heading on the accounts. This resulted in nothing being posted in terms of cost.

Having proved this we were instructed to check the entire fiscal year and discovered that approximately €330,000 of cost had not been posted in the P&L. We were then tasked with repeating the exercise for three further fiscal years and eventually identified over €1 million of “missing” costs during this period.

The exercise was time consuming and painstaking to perform, and was perhaps best performed by someone who had cut their teeth on old manual ledger card reconciliations – and who refused to take anything the payroll software said at face value without proving it!