5 major accounting and payroll errors costing your company

By Sathee Brent,

When companies manage their payroll through manual processes, they may be unaware of the financial losses that could result from errors with these systems. Not only can the wrong numbers result in under or overpaying employees, resulting in inefficiencies, but it can also lead to liabilities that could put businesses at risk. According to Bloomberg BNA, U.S. businesses lost nearly $7 billion due to IRS civil penalties because they did not calculate their business incomes and employee values properly. As companies handle their payrolls during tax season and beyond, they should correct accounting mistakes that could cost firms more than they bargained for. Here are significant accounting and payroll mistakes costing companies: 1. Underestimating the price of human error Although companies could have the most advanced payroll software, there is the potential for human error if employees are unfamiliar with how to use this technology. A survey of tax professionals by Bloomberg BNA found human error was the No.1 cause of accounting mistakes. "Technology has remedied plenty of business issues, but it hasn't eliminated human error," Bloomberg BNA said in an infographic. "For tax and accounting departments, human misjudgment manifests in multiple forms, putting oragnizations at risk for financial and reputational consequences." 2. Inputting incorrect data As a side effect of human error, workers could enter in the wrong data, which could have a ripple effect in payroll. When companies have administrative payroll tasks that involve entering data by hand, there is always the risk for making huge errors no matter how attentive employees think they are. Even worse, companies could spend more money on checking or correcting employees' data entry, which leads to greater payroll inefficiencies. 3. Using wrong spreadsheet calculations While companies have most likely used spreadsheets in the past, this method could result in accounting shortfalls if they make small mistakes. Companies could use formulas in their spreadsheets that may be incorrect. Rather than rely on spreadsheets to do their calculations, companies could use incentive compensation management software that will record information and analyze it properly. This solution is ideal for companies that want to track employee performance, pay them according to their productivity and provide payments correctly within this system. 4. Not calculating incentives in employee income During tax season, payroll managers often have to work harder to ensure their organizations are in compliance with tax rules. However, some companies may not realize that they should include incentive compensation like prizes and awards as part of their employees' income, according to Accounting Today. Companies should be sure to count incentives, such as gift cards, like cash when totaling employee wages. The majority of prizes and awards, such as gift cards, are considered taxable benefits because they are similar to cash, and should be calculated along with taxable wages for federal income documents. 5. Neglecting security issues Not only can employees make mistakes that could slow down operations during payroll management, but they can also put the company's sensitive information at risk. Companies could lose money through weak security of corporate and employee information. Since firms are vulnerable to cyberattacks that could endanger this data, companies should account for the risk of human error in protecting information found in company databases. Data breaches could cost companies an average of $3.5 million, according to the 2014 Cost of Data Breach Study: Global Analysis conducted by Ponemon Institute. Companies could ramp up their data breach response as well as invest in more secure systems that could deter data theft. "As a preventive measure, companies should consider having an incident response and crisis management plan in place," Ponemon Institute said in a release. "Efficient response to the breach and containment of the damage has been shown to reduce the cost of breach significantly."

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Sathee Brent