Without employees, a company cannot provide the specialized products and services to the customers that do business with them. Having reliable payroll operations allows for employees to receive compensation for their dedicated work. While many businesses perform their own payroll accounting and administrative tasks, others hire payroll companies to take over the work of compiling payroll processing data, distributing funds to employees, and handling other transactional tasks.
Why You Should Routinely Audit Your Payroll Company
Routine audits of the internal controls and performance of a payroll company’s operations will let the payroll company provide a written attestation report that shows their objectives match their operational activities. These reports will often be requested by auditors to ensure that the payroll company is following all regulatory compliance guidelines. Business clients will also use these reports to understand the services the payroll company provides, the types of internal control objectives that are in place for the offered services, and whether the payroll company has the appropriate risk management plans in place to oversee the security of payment processing tasks. These reports help the business client to see what impact the payroll company’s internal control systems will have to the client’s financial statement reporting.
SOC Audits for Payroll Companies
SOC audits are standards created by the American Institute of Certified Public Accountants (AICPA) to provide standardized reporting requirements to assess the service organization’s internal controls. There are two main types of SOC audits that payroll companies will have performed: SOC 1 and SOC 2.
SOC 1 Audit:
The SOC 1 audit allows the auditor to attest to whether the description about the financial system that the payroll company has described in their management objectives truly matches the operations they perform. The audit also checks how the internal controls are designed and whether they are suitable to reach the desired objectives set forth by the payroll company.
SOC 2 Audit:
A SOC 2 audit will perform the same functions as an SOC 1 audit to analyze the internal control systems and attest what impact the payroll company’s operations will have toward a client’s financial statement reporting capabilities. An additional function of an SOC 2 audit is to analyze the internal controls that are currently in place and look for discrepancies or gaps in these control objectives that would hamper the success of the management objectives being reached.
Why are SOC Audits Important?
Payroll companies are in charge of requesting, validating and handling large amounts of financial data to make the correct payments to the client’s employees. They need to design and implement the appropriate internal controls that safeguards and processes these payments following the appropriate compliance standards. SOC audits allow for payroll companies to evaluate their present objectives and see if their internal controls can allow their operations to successfully meet these objectives when providing payroll services.
Often, payroll companies will request auditors to perform gap analysis to determine any issues so the company can improve their operations. These reports can also be given to potential clients to help them decide whether the services the payroll company provides will meet their business needs. Payroll companies can build trust and increase profits with more efficient operations.
Attestation Reports for Your Payroll Company
If you are a business looking to hire a payroll company to handle the financial payments to customers, or you are a payroll company in need of attestation reports to analyze the internal controls of your company, I.S. Partners, LLC can provide comprehensive auditing services to your organization. We offer SOC 1, SOC 2, and SOC 3 reporting for a wide range of businesses so they can streamline internal processes. Contact our company today at 215-675-1400 or get an audit quote to learn more about our auditing services and how your company can reach regulatory compliance.