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To Reconcile or Not to Reconcile

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By Deryn Venski – Training and Development Practitioner, LabourNet Payroll Solutions

As we are nearing the end of the SARS filing season for employers, payroll consulting companies are experiencing the age old problem of trying to assist their clients by ensuring that the tax declarations are correct and balance to what the client has paid over. I have recently attended a number of tax workshops and seminars where it has been explained by these consultants that this period is a time many clients are going to be in “big trouble”. The main reason is that their clients, the payroll administrators, have neglected to do the simple monthly reconciliation and checks to ensure all their tax issues were correct.

In a recent survey of 150 companies, whose payroll departments were called to ask if they did regular reconciliations, only 40 % said that they do reconciliations. Most of those who said they did not do reconciliations stated that they used a computerised system, and this system should be correct. They believe that if there is a problem then the payroll vendor company should be liable. The problem with this reasoning is when a problem is detected; it is usually too late to make a change or the problem has escalated to place the company at risk.

Companies who did the reconciliations noted that should errors be detected, it is usually easy to correct, as the error was in the current period. The error could be amended, and if necessary the vendor company could make an easy change.

What to Reconcile?

What should a payroll administrator be reconciling monthly? This is often asked on courses by payroll practitioners. The answer to this is very complex, but the reconciliations should include, but are not limited to:

  • Monthly EMP201 declarations and PAYE, UIF and SDL payments;
  • Employee loans and saving accounts;
  • Medical aid contributions against the medical aid statement;
  • Retirement instrument contributions against the retirement company statements;
  • Garnishee deductions against garnishee orders;
  • Bargaining council contributions against returns;
  • Payroll general ledger accounts against the payroll.

Implications

Failure to complete the reconciliation can have far reaching implications for each of these criteria mentioned above.

Monthly EMP201 Declarations and PAYE, UIF and SDL payments

Failure to reconcile these on a monthly basis can result in incorrect payments being made, penalties and, worse, a nightmare at the filing season. I have personally experienced when consulting at a client that it took the payroll administrator and me well over six months to correct the filing errors due to a lack of reconciliations. SARS has no mercy in these cases and penalties and interest are charged. SARS can charge up to 200% in penalties.
In addition the UIF declaration that is sent to the UIF commissioner at the Department of Labour must be reconciled to prevent incorrect returns being submitted. Should the deceleration be incorrect, or the UIF value not balance, the company will not be accredited. Under the new UIF rules, this will mean that employees from that particular company will no longer be able to claim.

Employee Loans and Saving Accounts

A sure way to have unhappy employees is to over deduct for a loan or under pay savings. It may only affect a single employee at a time, but employees talk. I once had to assist a client to correct a loan which had caused the entire factory to walk out on strike. The administrator was adamant that her loans system was correct. When I did the reconciliation, she had over deducted two months repayments and still showed one outstanding on the payroll. The cost to the employer was huge due to a 3 day strike while we corrected this. Had the reconciliation been done, this would not have occurred.

Medical Aid and Retirement Instruments

Medical Aid companies and retirement instrument companies send a monthly statement of what they expect to be paid across from the payroll each month. These companies are not aware of staff movements or changes, so it becomes the payroll administrator’s duty to inform these companies of the changes. This is done via reconciliation between the statement and the payroll. The payroll contributions for these will very seldom equal the received statement, which will result in either short payment or overpayment according to the vendor company. This also results in incorrect allocations against employees which in turn affects the benefits they are paying for.

Garnishee Deductions against Garnishee Orders

Every garnishee order that is received, from whatever institution, is received with a total amount owing. As with loans, these need to be reconciled. Over deductions can easily be done if not correctly reconciled and it is always a near impossibility to get the money back from the garnishor if paid across. This is even a bigger problem when a company continues to pay a “paid up” garnishee order, as experience has shown that the garnishors very seldom notify the company that the garnishee order is complete. The payroll administrator should also request an annual update from the garnishor to get any new values after interest has been added. This is due to the fact that not all garnishors include the interest due in the garnishee order.

Bargaining Council Contributions against Returns

Bargaining councils have the right to penalise member companies for incorrect returns. These penalties differ from council to council, but average around 10% of the total return. What makes this even more difficult, is that the bargaining councils usually only pick up errors months down the line, and then require the payroll administrator of the offending company to correct it. They do not take excuses and start to apply the penalties in a compound method.

Payroll General Ledger Accounts against the Payroll

My favourite excuse for not doing these reconciliations is “It’s the bookkeeper’s responsibility.” Failure to reconcile the ledger accounts against payroll can and will result in the control accounts always having a balance and the expense accounts being incorrect. The company auditors will have a field day with this which in turn will send signals that all is not well in the payroll department. This function may be the bookkeeper’s responsibility, but unless they actually do the payroll, they do not know what is happening in payroll. This is always the function of the payroll administrator under the direction of the bookkeeper.
System Run Payrolls

Even though a company has a payroll system, the responsibility remains with the payroll administrator to do these reconciliations. There is an old computer acronym that is GIGO – Garbage In, Garbage Out.  The best systems can only produce the information according to what is input. In addition, the best system implementers are known to make the odd mistake. No payroll administrator has the right to turn around and say the implementer or consultant made the mistake. It is their duty to do the final check and to make sure it is correct. Payroll administrators and professionals must know that they can never pass the blame onto anyone else for an incorrect payroll.

Companies look to their payroll professionals to ensure that their most valued assets, their employees remain happy and properly paid. The employees look to these professionals to know that they will be compliant with their tax returns as far as the company’s responsibility to produce correct tax certificates goes. Managers rely on the information given from the payroll. No payroll professional should ever have an excuse if there is an error. It must be remembered that SARS holds the payroll administrator personally responsible for errors. The payroll administrators are ultimately responsible and should have all the correct procedures in place to ensure that the payroll runs effectively and they should be doing all the relevant reconciliations to ensure the payroll’s accuracy.