The audit of salaries and wages is a little different from the audit of other expenses or payments of an enterprise. The difference is that the audit procedures lay emphasis on checking the strength of the internal control system. This therefore means that to carry out a proper audit one should have a very good understanding of the features of a strong internal control system for payment of salaries and wages.

Some of the frauds which can be perpetrated by the employees and which the auditor should look out for include:

  1. Dummy/ghost workers- these are workers who do not exist.
  2. Fraudulent double payment for employees- this could be done by giving different names for the same person.
  3. Payment for work not done and unclaimed wages being misappropriated.
  4. Inflating payroll by wrong increments or showing increment when it is not due.
  5. Improper deductions being made or being misappropriated
  6. Manipulation of commission.

The auditor should check the following areas carefully:

  1. Time workers- who come in shifts who work for a certain number of hours a day.
  2. Piece workers-employed to do a certain job.
  3. The preparation of wages
  4. The payment of wages
  5. Dummy workers
  6. The recording of salaries and wages and also employee records.

Audit Tests for Salaries and Wages

  1. Test the internal control system of payment of wages. Check if there is possibility of this system detecting ghost/dummy workers or any similar fraud.
  2. Check the procedure of employment and dismissal of employees, which should be authorised by a responsible officer.
  3. Verify that there is proper recording of wages.
  4. For time basis check time records.
  5. Check authorisation of overtime.
  6. Verify authority for deductions and ensure proper recording.
  7. Check castings of wages.
  8. Ensure all stages of preparation of payment of wages is properly authorised.
  9. Check total of wages paid to control account
  10. Check unclaimed wages book with entries in wages sheet
  11. Test a number of entries of payments to employees and ensure that they were received by employees
  12. Reconcile signature of original employment to that signed on receipt of the wages.