Payroll Checks

The storage, printing, and distribution problems associated with checks of all types certainly apply to payroll checks. The following controls are particularly applicable to those companies that process their payrolls in-house, since they handle check stock. However, even companies that outsource their payroll activities should consider the controls related to bank reconciliations, uncashed checks, and signature cards. If employees are paid solely through direct deposits, then these controls do not apply. They are:

Control check stock. The check stock cannot be stored in the supply closet along with the pencils and paper, because anyone can remove a check from the stack, and then they are only a forged signature away from stealing funds from the company. Instead, the check stock should be locked in a secure cabinet, to which only authorized personnel have access.

Add security features to check stock. With today's advanced technologies, checks can be successfully modified or copied. To counteract this, purchase check stock with such security features as a "Void" logo that appears when a check is copied, microprinting that is difficult to copy, or holograms that are difficult to reproduce. A particularly effective method is to print a small lock icon on the face of a check, which warns a bank teller that the check contains security features that are listed on the back. The teller can then check the list of features and verify that they exist.

Control signature plates. If anyone can access the company's signature plates, then it is possible not only to forge checks, but also to stamp authorized signatures on all sorts of legal documents. Accordingly, these plates should always be kept in the company safe.

Fill in empty spaces on checks. If the line on a check that lists the amount of cash to be paid is left partially blank, a forger can insert extra numbers or words that will result in a much larger check payment. Avoid this by having the software that prints checks insert a line or series of characters in the spaces.

Mutilate voided checks. A voided check can be retrieved and cashed. To keep this from happening, use a stamping device that cuts the word "void" into the surface of the check, thereby sufficiently mutilating it so that it cannot be used again.

Perform bank reconciliations. This is one of the most important controls anywhere in a company, for it reveals all possible cash inflows and outflows. The bank statement's list of checks cashed should be carefully compared to the company's internal records to ensure that checks have not been altered once they leave the company, or that the books have not been altered to disguise the amount of the checks. It is also necessary to compare the bank's deposit records to the books to spot discrepancies that may be caused by someone taking checks or cash from the batched bank deposits. Further, compare the records of all company bank accounts to see if any check kiting is taking place. In addition, it is absolutely fundamental that the bank reconciliation be completed by someone who is completely unassociated with the payroll function, so that there is no way for anyone to conceal their wrongdoings by altering the bank reconciliation. Finally, because it is now possible to retrieve bank records online through the Internet, a reconciliation can be conducted every day. This is a useful approach, since irregularities can be spotted and corrected much more quickly.

Review uncashed checks. If checks have not been cashed, it is possible that they were created through some flaw in the payroll system that sent a check to a nonexistent employee. An attempt should be made to contact these employees to see if there is a problem.

Update signature cards. A company's bank will have on file a list of check signatories that it has authorized to sign checks. If one of these people leaves the company for any reason, he or she still has the ability to sign company checks. To void this control problem, the bank's signature card should be updated as soon as a check signer leaves the company.

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Payroll Checks

Payroll Checks