Internal Audit Checklist

Area- Statutory Compliance (Labour Laws)

Sl. No. Particulars Yes/No/NA

The Contract Labour (Regulation &
1 Abolition) Act, 1970
- Whether applicable to the entity
- Whether Registration Certificate
(Before Appointing Contractor) – Form-1
has been obtained or not?
- Whether Register Of Contractor – Form-
XII has been obtained or not?
- Whether Register Of Employees
Employed By Contractor – Form-XIII has
been obtained or not?
- Is Muster Roll, Wage Register, Over
Time Register, Fine Register Deduction
Register, Advance Register (Contractor)
is maintained or not?
- Notice Regarding Rates Of Wages is
maintained or not.
- Half Yearly Return By Contractor –
Form
Annual – XXIV has
Return Bybeen filed or
Principle not?
Employer –
- Form – XXV (Before 15th Feb) has been
filed or not?

Employee State Insurance

2 Corporation Act, 1948
- Whether applicable to the entity
Whether below books/ledgers are
maintained or not?
- Muster Roll
- Wage Register
- Inspection Book
- Accident Register
- Cash Books, Vouchers & Ledgers
- Paid Challans, RDF And Declarations
- Register
Half Of Return
Yearly Employees – Form
– Form –7 –
– 6 (April
- September & October – March) 42 Days
After Closing Continued Period has been
filed or not?
 Compliances
Whether to is
the unit beregistered
checked:under
- ESIC
If security contractors have been
- registered separately, whether the
copies are obtained from them and kept
in safe custody.
- Whether declaration Forms (Form 1)
and return of declaration Form (Form 3)
for new employees have been submitted
immediately on their day of joining.
Whether the unit has maintained an
- Accident Register (Form 15). The
employer has to report within 24 hours
in case of serious/ fatal accidents
immediately.
Whether the unit has reported all
-
reportable accidents (i.e., which prevent
an employee to report from duty for a
period greater than 48 hours) to the
ESIC authorities vide Accident Report
Whether
(Form 16).the unit has maintained Form
- 7 register showing monthly ESIC
contributions and all the details of
employees covered under the ESIC Act
(the company or the contractor, in case
he has his own code, needs to maintain
Form 7). the unit has maintained ESIC
Whether
- Records for previous years as inspection
can be carried out by authorities any
time.
Whether the unit has filed ESIC half-
- yearly return in Form 6 within 42 days
of the half-year ended September 30 or
March
Whether 31, asunit
the the case may be. ESIC
has deposited
- monthly contributions (both employer
and employee) before 21st of the
following month.
Employees Provident Fund Act,
3 1952.
- Whether applicable to the entity
Whether below mentioned books are
maintained or not?
- Muster Roll
- Wage Register/Pay Roll register
- Form- 3A, 5, 10 & 12A
- Inspection Book
- Cash Book, Voucher & Ledger
 - PF Work Sheet
- Monthly Return – Form – 5, 10, 12A
along with paid challans (before 25th of
every
Annualmonth)
Returnhas been –filed
– Form 3A &or6A
not?
- (before 30th April Every Year) has been
filed or not?
Prevention of Money-Laundering
4 Act, 2002
- Whether applicable to the entity
- Whether the above referred policy is
approved by Board
Whether regular of Directors?
monitoring of
- transactions is done for ensuring
effectiveness of the Anti Money
Laundering procedures?
Whether special attention has been
- given to all complex, unusually large
transactions/patterns which appear to
have no economic purpose?
- Whether the client identification
programme is implemented?
Whether the compliance cell or
-
department has randomly examined a
selection of transaction undertaken by
clients to comment on their nature i.e.
whether they are in the suspicious
transactions or not?

5 Payment Of Bonus Act, 1965

- Whether applicable to the entity
- Whether the company is eligible to pay
bonus or not.
- Whether Register Of Bonus – Form – C
is maintained or not.
- Whether the company maintains the
calculations
Whether the sheet of Bonus or
unit maintains not.
a register
- showing the computation of allocable
surplus referred to in Clause 4 in
Section 2 in Form A.
- Whether minimum bonus is paid or not,
in case of provision
Whether loss. for Bonus is made or
- not.
Whether Annual Returns – Form-D
- (Before December Every Year) is filed or
not.
 - Whether the unit maintains a register
showing the Set on and Set Off of the
allocable surplus in Form B.
Whether the unit maintains a register
- showing the details of amount of bonus
due to each of the employees, the
deductions u/s 17 and 18 and the
Calculation of bonus
amount actually with respect
disbursed in FormtoC.
certain employees- where salary or
-
wage exceeds ` 7,000 (increased from
existing ` 3,500) the bonus payable to
such employees shall be calculated as if
salary or wage were ` 7000 per month
or the minimum wage for the scheduled
employment, as fixed by the appropriate
government, whichever is higher.

6 Payment Of Gratuity Act

- Whether applicable to the entity
- Whether the unit has submitted notice
of opening of establishment (Form A) to
the Controlling Authority within 30 days
of starting of the unit (This is applicable
only for new units).
- Whether the company is eligible to pay
Gratuity or not.
If yes, then Notice Of Opening – Form –
- A ( To: Labour Department) has been
filed or not.
- Whether Register Of Gratuity is
maintained or not.
- Whether the company maintains the
calculations sheet of Gratuity or not.
- Whether provision for Gratuity is made
on the basis of Actuarial or not?
- Whether Declaration in “Form F” has
been given
Whether theorunit
not.has prominently
- displayed the abstract of Payment of
Gratuity Act.
- Whether the unit has displayed the
name of Company’s officer authorized to
receive
Whethernotices under
the unit the Act. any
has intimated
- change in the unit head or address of
unit to the Controlling Authority in Form
B.

7 Shops and Establishments Act, 1953

- Whether
Whether applicable
the Shop andto the entity
Establishment
- Registration certificate is valid as on
date.
Whether the Shop and Establishment
- registration certificate is prominently
displayed.
- Whether notice of the last change in the
unit head has been given to Shop and
Establishment authorities.
Whether the unit has submitted notice
- of weekly holidays and notice of daily
working hours to the Inspector under
Shop and Establishment Act.
- Whether the unit has displayed a copy
of the notice of daily working hours
submitted to the Inspector under Shops
and Establishment Act, 1953.
- Whether the name and address of the
local labour inspector is displayed as
per Shop the
Whether andunit
Establishment
maintains anAct, 1953.
- inspection book for visit remarks of the
Inspector.
Whether the unit maintains a muster
- register as per Shop and Establishment
Act for all regular and contracted
employees.
- Whether the employee leave cards are
maintained and updated as on date.
 NOTE: Payment of Wages Act, 1936 and Minimum Wages Act, 1

Comments
Minimum Wages Act, 1948 have not been covered.
Internal Audit Checklist
Area- GST

Sl. No. Points to check Yes/No/NA

1 Difference between invoice date and payment
date – It shouldn’t be more than 180 days
Payment amount should be equal to invoice
2 amount plus GST. If the payment amount is less
than invoice amount plus GST, then input tax
credit to the extent of short payment has to be
reversed.
3 Business is issuingin
Details mentioned e-way bill wherever
the e-way necessary,
bill match with
4 the details of sales or purchase invoice as the
case may be.
Comments
Internal Audit Checklist
Area- Payroll
Sl.
No. Joining and relieving of employees
1 Procedure for selection of employees should be followed strictly.
2 How is 'Bench' being dealt-
with/reviewed/considered while recruitment.
3 Are
Doesoffer
offerletters
letter for Joinees
conatain a provided everytime?
list of all the exhaustive
4 policies?
5 Procedure for resignation
6 Notice period served should match with the policy.
Is it matching?
7 Is proper documentation maintained when an employee resigns?
8 Is feedback taken from the employees at the time of
resignation/termination etc.'?
9 Are new joinees list updated in system on time
10 Is there a checklist to ensure that all the
joining/reliving formalities are carried-out?
11 Is necessary acceptance from the new joinees taken
before joining?
12 Contract, obligation and payment to the placement consultant.
13 Joining bonus, if any?
14 Relocation
interviews assistance policy has been followed?
15 with employees separating from service)
communicated
to payroll staff in a timely fashion?
16 Do they go for campus placements?

B Payroll Processs
Are salaries and wage rates verified by someone
1 outside of the payroll process?
2 Is update access to both payroll and personnel
records allowed only with senior level approval?
approving
3 promotions segregated from those for preparing
payroll
transactions or inputting
Are responsibilities data?
for approving time sheets
4 segregated from those for preparing payroll
transactions
or inputting data?
 Are responsibilities for payroll processing
5 segregated
from those of pay distribution and general ledger
functions?
Payroll data entry staff Should not have payroll
6 approval
authority? Is this followed?
7 Is payroll data entry staff prohibited from entering
changes to given
Is the data their own records?
by the HR team in a non-editable
8 format? Is it non alterable by the Payroll processing
team?
9 Are pay adjustment reports reviewed by someone
outside of the payroll
Is reconciliation process?
of payroll funds/accounts
10 performed by
someone independent of the payroll function?
are not
11 involved in the hiring or firing of employees; the
approval of time and attendance; or payroll
preparation
and data entry?

C Time and Attendance Records:

1 Are all employees required to sign/log in and record
daily hours worked
Are employees’ timeand
andleave time taken?
attendance records
2 approved
by their supervisors?
3 Are time sheets/attendance records checked for
computations of the reported pay period hours?
4 Is overtime pre-approved and within budgeted
amounts?
If a time clock is used, is it placed where a
5 supervisor
can observe it?
6 Are time cards used only by the employees to whom
they aretime
Is leave issued?
pre-approved where appropriate
7 (vacation,
compensatory,
Are attendancemedical,
records family,
reviewed etc,)?
by management
8 for
excessive absences
Are appropriate or tardiness?
“management of effort” records
9 maintained for payroll charged to federal grants
(per
OMB Circular A-87)?
10 Are procedures established for inputting time and
attendance into the payroll system?
11 Do procedures exist to review time records for
completeness, accuracy and supervisor approval?
12 Can corrections be made? Are corrections to
recorded time approved by the employee’s
supervisor and authorized by management?

D Checks for Payroll processing and payroll

records
Is access to payroll records secure, and limited to
1 authorized persons only?
2 Are appropriate payroll records maintained for
accumulated employee benefits (vacation, sick,
compensatory time, pension, etc.)?
Have employee attendance records been
3
established
and properly in
Are changes maintained?
employment status promptly
4
reported to
the
Arepayroll processing
employee unit? and changes for
authorizations
5
payroll
deductions, tax withholding, etc. kept on file per
retention
Are payrollschedules?
expenditures reviewed and approved by
6
an
authorized signatory
Is logical access prior to
to payroll the payrollcontrolled
applications cycle?
7
by
user logins
Are user andfor
roles passwords?
application processing assigned
8
so
that segregation
Is access of duties
to the master is maintained?
payroll file and/or payroll
9
production database limited to employees
authorized to
make changes?
Are changes to the payroll file or database approved
10
by
someone otherrecords
Are complete than the person
kept making the change?
for authorization and
11
documentation of data requiring modification or
deletion
in order to continue with payroll processing?
12 Are reports run prior to batch production to identify
exception records
(e.g., gross pay > $5k; net pay < $5)?
13 Are payroll checks/warrants pre-numbered, blank
stockcontrolled
and used in checks/warrants
Are payroll numerical sequence?
accounted for in
14 numerical
sequence and reconciled to the payroll check
Do advices contain detail of gross pay and
register?
15
deductions?
Are voided/spoiled checks/warrants properly
16
destroyed
and maintained?
 If checks/warrants are machine-signed, are controls
17 in
place to secure the signature plates and the
checksigning
18 machines?
Is a log maintained to reconcile the counter on the
check-signing machine with the number of
checks/warrants issued?

E Payroll
Are Disbursementapproved
warrants/registers checks before
1 disbursements
are made?
2 Is a payroll advance account maintained to handle
cases of emergency pay?
3 Is the advance account regularly reconciled?
4 Is a separate
the payroll payroll fund/bank
fund/bank accountaccount maintained?
regularly
5 reconciled?
6 Are employees prohibited from accepting another
employee’s
distribution pay?
7 immediately reported to the accounting
department?
Is payroll distributed periodically by someone (e.g.
8 internal auditor) outside the normal distribution
function?

F Checks for Employee Refunds/Overpayments

1 Are overpayments to employees requiring refund
processing documented and approved prior to
processing?
Are underpayments requiring additional pay
2 properly
verified, and time and attendance records adjusted
accordingly,
Are unclaimedprior to processing?
employee checks/warrants returned
3 to a
business unit other than payroll?

G Checks regarding Training

exist so
1 that the payroll function could be maintained and
operated if key personnel leave or are absent at
critical
times?
personnel
2 and payroll staffs perform their functions
effectively?
3 Are other employees cross-trained to ensure the
uninterrupted performance of personnel and payroll
functions?
4 How are the training schedules planned for the new
joinees
Are and exiting employees?
all departments imparted training once in a
5 year?
Are feed-backs obtained from the trainees and
6 implemented?
How does the department design training program
7 for the development of the employees. Such as
considering the job profile, recent market changes
and practices?
8 Whether trainings imparted commensurate with
yearly assessment of the executive?

H Checks for Tax Reporting/Reconciliation

1 Are all payroll taxes deposited timely?
2 Are all quarterly and year end reports filed with the
appropriate entities timely and accurately so as to
avoid penalties?
Are federal and state withholding certificates on
3
file?
4 Are all income taxes and other deductions
calculated properly?
Is there a checklist for tax and other deductions
5
deposit and reporting requirements available for
staff to follow?
6 Is the payroll application continuously updated with
vendor software tax updates, or
Are there procedures to ensure the entity is notified
7
of all tax updates required to keep the payroll
system up to date?
8 Are W-2s distributed by personnel not connected
with the preparation of payroll?

I Checks for Personnels

Have personnel files been established for all
1 employees?
2 Do physical controls exist over personnel records to
prevent their loss or use by unauthorized
personnel?
Do personnelWhere are the files
files include: kept?
applications, resumes,
3 withholdings and deduction authorizations and
appraisals?
Do personnel files include documentation of all
4 promotions, raises, transfers, dismissals,
disciplinary actions, etc.?
5 Have job descriptions been written and updated as
needed for every position? And wgere?
6 Are personnel rules and policies published and
distributed to all employees? And when?
7 Do employees receive performance appraisals on a
regular basis,inwith
Are changes results fully
employment documented?
(additions, transfers
8 and terminations), salary and wage rates, and
payroll deductions properly authorized, approved
and documented?
9 Is the payroll processing function promptly notified
of changes in employment, salaries/wages and
deductions? And how and where?
Are employees separating from service interviewed
10 by personnel department prior to departure, for
review of benefits, return of assets (e.g., cell
phones, laptops, pagers, etc.), and as a final review
of
Areany termination
procedures settlement?
in place to remove payroll
11 application, network, and physical office access
when employees separate from service whether
voluntarily or involuntarily?
 Dealt by Yes/No/NA Controls verified
be followed strictly.

n employee resigns?

cement consultant.

Dealt by Yes/No/NA Controls verified

Dealt by Yes/No/NA Controls verified
Dealt by Yes/No/NA Controls verified
Dealt by Yes/No/NA Controls verified

Dealt by Yes/No/NA Controls verified

Dealt by Yes/No/NA Controls verified

 Dealt by Yes/No/NA Controls verified

Dealt by Yes/No/NA Controls verified

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Internal Audit Checklist
Area- Payroll

Sl. No. Points

Documentation, to check
Authorisation and Yes/No/NA
I Ananlysis
1 Obtain revenue policy/Standard operating
procedure (SOP)ofofthe
Documentation thequeries
Companyand
2 clarifications must be obtained from the
client (Policy w.r.t sales, customer discount,
credit period etc).
3 Obtain risk control matrix of revenue (RCM)
4 Understanding the involvement and use of
technology/ software w.r.t revenue from
order
Checkto cash;
for the exceptional reports in the
5 software, to understand the irregular
transactions.
Documentation of Authorization matrix of
6 revenue
Ensure that variations in sales prices are
7 (strategically) intentional (e.g. sale price
significantly below manufacturing cost/full
costs) by obtaining authorization from
management.
Ensure a proper handling of
8
offers/quotations to customer. Make sure
that every offer/quotation is approved
according to the internal approval guideline
and that for every offer exists a complete
filled RFQ checklist (Request for quotation).
9 Documentation of all possible ratios and
their analyses
10 Verification of the evaluations of market and
Review and analysis of the books of account
competitor analyses and their discussion in
for price change log (price history) with
regular meetings.
regard to the plausibility of changes made
11 (For example whether changes have been
made by employees of other units).
12 invoices or customer credit notes with their
order basis (contract, offer, order
confirmation) with a view to correct
invoicing of liquidity-related invoice items
(such as Incoterms, special packaging,
discounts, bonuses), and analysis of the
causes of deviations.
13 Verify the prices charged to customer with
the agreed price in CPO (Customer purchase
order)
 14 Obtaining the internal reporting packs (MIS)
and compare with the financial numbers.
Review the budget and actual numbers
15 Analysis of lead times for customer orders
and tracking of customer orders not
processed/shipped within
Check availability of sales apolicy
defined
andperiod.
16 adherence to sales policy and report
deviations, if any
17 Policies and procedures for credit and
collections management should be clearly
documented and communicated
18 Whether pre-shipment inspection has been
carried and material has been dispatched as
per invoice and contract
19 Variance analysis- MOM, YOY, Quantity
analysis, customer movements, Segment
analysis, Return on capital employed
20 analysis.
Standard wastage to actual wastage analysis
and its accounting treatment.

II Segregation of Duties Yes/No/NA

1 There should be segregation of duties
between the following functions:
– Credit control
– Credit notes
– Collections
– Accounts receivable

III IT Controls
Does the information system allow only Yes/No/NA
1 authorized personnel to create, change, or
delete sales orders, contracts and delivery
schedules?
The information system does not allow
2 processing of sales orders that exceed
customer credit limits;
3 The information system should allow only
authorized personnel to create, change, or
delete customer master file.
4 System of creating and maintaining
customer master file and list of documents
obtained to check KYC norms
 5 Whether multiple codes have been opened
for single customer and reason therefore;
6 There should be sequential control over all
Invoices, Credit Notes, Delivery Orders and
Goods Returned Note
7 Analyse the standards used in Similar line
of Company- input output ratios, employee
cost per unit, depreciation per unit etc. and
compare with the client Company.
8 Verification of the review/analysis of slow-
moving items (Finished and semi-finished
goods), including resulting measures.
9 Ensure that there are no multiple/duplicate
customer
Check for master data existing;
the quotations sent to customers
10 and the process involved in updating the
quotation master and compliance with the
same.

IV Credit Notes Issue Yes/No/NA

Credit notes should be approved by
1
Functional Managers independent of sales
Verify/ensure that credit notes state the
function.
2 correct amount and are approved in
accordance with the company's approval
policy
3 Credit notes are sequentially controlled.
4 Sales Return System: Approval for taking
sale return, receipt and inspection of
returned goods and issue of credit note, etc.
Sales return reason, analysis and comment
on sales return material lying in stock and
the gain/ loss on resale of returned material.

V Reconciliation
Debtors ageing report should be reconciled Yes/No/NA
1 to the GL monthly and reviewed by Finance
Manager.
2 Reconciling the sales/services with GST
returns

VI Collections and Bad debts Yes/No/NA

1 Monthly debtors ageing reports showing old
debts beyond credit period should be
generated for monthly credit review.
 2 Follow up actions for long outstanding debts
should be established and documented
during credit review meetings.  Follow-up
actions should include sending of
reminder/warning letters and, ultimately
legal letters
Customer as a last resort.
statements should be
3 mailed monthly to customers. Disputes
must be investigated and resolved within
two weeks and monitored by Functional
Manager independent of sales function.

VII Sales, Invoicing

Price and and Recording
volume discounts should be Yes/No/NA
1 approved in accordance with the authority
levels.
2 Sales orders should be evaluated to ensure
compliance
Outstandingwith
salesapproved credit be
orders should limits.
3 monitored daily for their progress and
status.
4 All Delivery Orders should be matched with
Invoices
All Creditand Customer’s
Notes Purchase
should be supportedOrders.
and
5 approved in accordance with the authority
levels.
6 There should be sequential control over all
Invoices, Credit Notes, Delivery Orders and
Goods
Check Returned Notes.
whether there are any instances of
7 advance invoicing/ late invoicing as
compared to dispatch
8 Check for the receipt and interest clause in
the customer agreement.
19 Status of pending overdue sales order,
reason and financial implication, if any

VIII Credit Assessment Yes/No/NA

1 The credit worthiness of all new credit
customers should be evaluated and
documented for approvals in the credit
assessment forms.
2 Credit limits of customers must be approved
in accordance with the DOA.
3 The credit assessments should include at
least two of the following:
– Analysis of customers’ latest available
financial statements or credit rating
agency’s reviews
3

– Understanding customers’ management

and business
– Personal guarantee
– Site visit
4 Credit ratings of one to six should be
specified for each customer based on the
credit assessments.  Customer credit terms
and limits should be granted based on the
credit ratings.
Overrides to the credit rules should be
5
approved in accordance with the authority
levels.
6 Credit assessments for all major
customers should be updated annually.
7 No delivery order should be generated by
the system if the relevant customers had
trade debts exceeding either their
credit terms or credit limits.Overrides
require pre-approval from both the
Divisional Director and Finance Manager
before the orders can be processed.
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