Payroll presents a number of challenges for any health care organization, and as an organization grows, the complexity of its payroll processes increases accordingly.
Employers are required to comply with labor and tax laws on federal, state, and local levels, and a weak control environment may lead to errors in calculation and reporting which can put an organization at risk for fraud or noncompliance with regulations.
Conducting periodic audits helps a health care organization monitor compliance and strengthen its control environment. Audits can also confirm controls that identify whether payroll records are correct or compliance issues exists early enough that they can often be mitigated before serious damage occurs.
The identification and timely remediation of potential payroll fraud and abuse are crucial to preventing financial losses, noncompliance, and damage to a health care organization’s reputation. These challenges often fall within three overlapping buckets: nonexempt-employees pay calculation, system for processing payroll, and policies and procedures.
Nonexempt-Employees Pay Calculation
For health care organizations with nonexempt union employees, the risk of payroll error, fraud, and abuse is high—especially when combined with issues, such as overtime, on-call pay, paid time off, shift differentials, and missed meal breaks. Other nonexempt union employee calculation challenges include the following:
- Special clauses in union contracts
- Collective bargaining agreement
- Legal disputes related to payroll
System for Processing Payroll
There are risks associated with any payroll system or time reporting system—or the implementation of a system upgrade. These can include issues, such as:
- Access and approval controls
- Segregation of duties
- Changes to an employee master file or payroll data
- Accurate time capture and attendance reporting
- Meal breaks and shifts greater than certain hour limits
- Taxes and benefits
- Appropriate pay codes configuration
Policies and Procedures
Specific challenges involved in the policies and procedures built around payroll include the following:
- Managing and monitoring clinical employees and their meal breaks
- Determining accuracy and validity of time entry
- Documenting pay code types that reference related laws or union contract requirements
Health care organizations that wish to lower the risk of payroll, fraud, abuse or noncompliance with regulations can benefit from implementing a periodic payroll internal audit. An internal audit helps to confirm that adequate controls are in place to prevent or detect issues and then remediate them quickly, often minimizing adverse effects.
Audit program and procedures can be tailored to an organization’s unique needs, but they’re often employed to verify the following common items:
- Accurate and up-to-date payroll data and information
- Properly calculated payroll amounts that are in accordance with local, state, and federal regulations as well as terms of employment
- Accurately calculated overtime that’s paid according to regulations and applicable union contracts
- Properly reimbursed meal times that reflect an employee’s shift length
- Access that’s properly restricted and duties that are properly segregated
- Timesheets that are properly authorized and reflect actual time worked
Although there are no set rules for how often a payroll audit should be performed, health care organization can often benefit from performing a payroll audit and following up quarterly on any corrective action plans that result from the audit. A payroll audit is also useful any time there are significant changes made to people, processes, and systems that affect payroll.
We’re Here to Help
To learn more about how a payroll audit can benefit your organization, contact your Moss Adams professional.