Vouching of Wages – Audit Procedure and Guidelines to Auditors
The vouching of payment of wages is an important duty of an auditor. There are many chances of misappropriation of cash under the banner of wages.
Before starting the work of vouching wages, the auditor should make a thorough investigation regarding the internal check system, which is in operation in regard to the preparation of wage sheet, maintenance of wage records, and payment of wages. If the system of internal check is not sound, he should bring it to the notice of the client and disown his liability.
After satisfying the system of internal check only the auditor should proceed to vouch wages. If there is an effective system in existence it is sufficient for the auditor to satisfy himself that the wage sheets are prepared and checked properly and independently by the office staff.
The auditor should see that the amount of wage drawn for each month tallies with the total wage sheet and corresponding payments.
How can an auditor detect frauds and misappropriation of cash?
An auditor should look into the following to detect frauds and misappropriation of cash;
1. Whether any fictitious names of dummy workers, ghost workers have been included in the wage sheet.
2. Errors and fraud committed in time of work and piece work record.
3. Clerical errors if any, occurred.
4. The name of the workers who have resigned or whose services have been dispensed with may have been included in the wage sheet or the names of ex-employees are to be entered in the wages sheets. This method is known as “Padding”.
5. Whether the rate of wages are overstated.
6. Hours of work or days of work put in by workers are overstated.
Besides, the above said general points, the auditor should give due importance to the following points also:
1. Few items of deductions such as provident fund, insurance, advance, etc. should be checked as to whether they have been properly adjusted and recorded in the books.
2. Wages for the current month should be compared with the wages of previous months. In case of any increase in wages, he should enquire into the reason for such increase.
3. Total wages sheets should be checked with cash book and ensure that the cashier had withdrawn the exact amount that is required to pay net wages and deposit the amount payable to the provident fund, employees state insurance department, etc. to the relevant accounts.
4. It should be ensured that the unpaid wages are deposited in the bank.
5. It should be checked that wages recorded in cash book have actually been paid and if the amount of wages exceeds Rs.500 revenue stamp of Rupee one has been affixed.
6. The signatures of the workers of two or three periods should be compared to examine their genuineness. Normally, test checking is adopted for this purpose.
7. It should be ensured that all the officers have signed the wage sheet certifying that payment of wages have been correctly made.
8. The system of employment of casual labour should be checked to see whether there is any loophole and if he finds any loophole he should go for a detailed checking.
In short, wages is vouched with an object of ensuring that the wages as recorded in the wage sheets and cash book, have actually been paid correctly and were properly authorized.
Vouchers to be Vouched — Wage Records, Job Cards, and Sage Sheets, etc.
Vouching of Salaries – Audit Procedure and Guidelines to Auditors
The auditor should vouch salary register and then compare it with the entries in the cash book.
He should see that the total of salaries book for a particular month agrees with cheque drawn for salaries. There may be some variation in salaries, which may be due to sanctioning of annual increments, increase in dearness allowance etc. If it is so the auditor should see whether the increment was actually due, whether there is an increase in dearness allowance, or it is a fictitious entry.
The auditor should also refer to appointment letters, contract, service book, etc. in order to see when is the increment due. He should also see that the necessary deduction for income tax, provident fund, insurance and repayment of advance has been made.
The auditor should examine that each employee has duly signed the salary register and the same is countersigned by the responsible official. He should examine the Board’s Minute Book for the salaries of Secretary, Manager or other senior officials.
Vouchers to be Vouched — Salary Book, Agreements, Appointment Letters, Minutes, and Counterfoils of Cheque.