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Payroll Reporting: One Mistake Can Create a Huge Mess


The city of Clearwater, Florida found itself facing a public relations nightmare after an internal audit revealed they had mistakenly overpaid more than $218,700 in sick time and other benefits over the last five years. A second audit of the books brought both good and bad news. It also illustrated the reality that just one mistake in payroll reporting can create a huge mess.

According to the Tampa Bay Times, the first audit of Clearwater’s Human Resources Department showed that the city’s Fire & Rescue division paid out way more than it should have in sick and leave time. They later determined that certain mistakes had been made in the original audit, triggering a second audit that cut the number by more than half. The actual amount of overpayment totaled just $102,124. That was the previously mentioned good news.

The bad news is that both the audit error and the actual overpayments were both due to improper reporting. Neither the city of Clearwater nor its HR department willfully or purposely paid out too much to employees. Rather, they were the victims of a payroll system that is prone to mistakes.

Mistakes by the Numbers

Clearwater’s revised audit showed that the majority of overpaid time was in relation to sick benefits. The audit revealed the following:

  • $78,470 in benefits paid to five former employers prior to retirement;
  • $23,653 in unearned pay and overtime due to four employees misusing sick time; and
  • an additional $44,664 paid to six employees who did not follow the process for taking legitimate leave.

The six employees who did not follow process apparently should have applied for leave under the Family Medical Leave Act (FMLA) instead of taking sick days. Clearwater’s policy for paying employers under the FMLA stipulates they would have received the same pay had they filed correctly.

Keeping Everything on the Up and Up

It is assumed that Clearwater officials will make improvements to processes and reporting procedures to ensure that the same mistakes do not happen again. In the meantime, there are lessons all employers can learn here. They begin with making sure everything is kept on the up and up.

Utah-based BenefitMall recommends employers start with a clear, concise, and detailed employee handbook that clearly outlines company policies regarding sick time, overtime pay, etc. Handbooks should be updated annually, and employees should receive regular training to ensure they understand company policies.

Next, reporting procedures need to be backed up by accountability practices. It is one thing for a policy to state that sick time cannot be used under certain circumstances, but if employees are allowed to still misuse sick time without being held accountable by management, the company policy has no teeth.

Finally, audits of internal financials should be conducted on a regular basis. There are times when honest mistakes are made and other times when employees willfully abuse the system. But neither scenario can be identified if audits are not taking place.

Outsourcing Payroll to a Third-Party Vendor

BenefitMall says that outsourcing payroll can help shore up both processing and reporting to some extent. A third-party vendor should have its own processes in place to guarantee that everything is handled properly, at least on their end. But even with a third-party payroll processor in place, employers still must make the effort to audit their own internals.

Just one reporting error can create a huge mess. In Clearwater’s case, several errors lead to a costly mistake to the tune of more than $100,000. That is not a mistake your company should be willing to make.

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