Does the word ‘audit’ make you shudder? Or run and hide? We wouldn’t blame you.
But as business owners, we invite you to come out of that hiding place and embrace the audit process. It can certainly save you a lot of headaches when it comes to reducing errors and improving accuracy, transparency and efficiency – saving you big bucks in the long run.
So get comfy, because it’s time to take a look at how – and why – audit trails are important for your HR and payroll management.
What is an audit trail?
An audit trail is a set of records that document and track activities that have taken place within an organisation’s systems. It is a chronological record of system activities that can be used to trace the actions of particular individuals or to review the sequence of events in a particular process.
Audit trails are commonly used in the financial industry to trace transactions and detect fraud. They are also used to ensure compliance with regulatory requirements.
In the context of HR and payroll, an audit trail is crucial for ensuring the integrity and accuracy of employee information, as well as for compliance with legal and regulatory requirements.
With an audit trail in place, HR and payroll professionals can easily track and review changes made to employee records, such as new hires, promotions, salary adjustments, and terminations. This allows you to quickly identify and correct any errors or inconsistencies, and provide a clear and accurate picture of your workforce.
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An audit trail can also help with compliance by providing a record of actions taken and by whom, which can be used to demonstrate compliance with laws and regulations. Overall, an audit trail is an essential tool for managing and maintaining accurate and compliant HR and payroll records.
Who is responsible for maintaining audit trails?
The responsible party for maintaining audit trails will depend on the size and nature of the business. Generally, it’s the responsibility of the IT department, systems administrators, or internal auditors to ensure that audit trails are properly maintained. For larger companies, an external auditor may also be responsible for maintaining audit trails.
Why are audit trails so important in HR and payroll software?
Audit trails are important in HR and payroll software because they provide a record of changes that have been made, which can help identify any errors or fraudulent activities. That’s why HR information systems (HRIS) are important tools to help businesses maintain the integrity of their HR and payroll systems – the lifeblood of any business.
Critically, audit trails also help ensure that compliance regulations are being met and that data is being properly managed and stored. This can give you, your HR professionals and all your staff complete peace of mind should there be any disputes or queries raised.
Should a dispute or a query be raised, then an accurate, objective and complete audit trail means that it’s easy to go back and find the source of the problem, enabling speedy resolution and preventing future incidents.
Audit trails also help businesses by giving them a clear picture of how their HR and payroll systems are functioning, and can also point to areas of weakness where improvements are needed.
What information should audit logs include?
Audit logs typically include information such as the date and time of the event, the user or system that initiated the event, the type of event (for example login, file access, configuration change), the outcome of the event (for example success or failure), and any relevant details or context related to the event. Additionally, the audit log may include IP addresses, process names, and any other information relevant to the business.
When it comes to audit trails for HR and payroll systems, audit logs should include information related to the actions taken within the system, such as:
- Date and time of the event;
- User who initiated the event;
- Type of event (e.g. employee record update, payroll calculation, benefits enrollment);
- Details of the event, such as the specific fields that were updated or the payroll period for which calculations were made;
- Outcome;
- Any relevant notes or comments regarding the event; and
- IP address of the user who initiated the event.
It is also important to include information to identify the specific employee who is being affected by the event. This could include their employee number, name, and department. Finally, it’s essential to have a system that can track who has access to the audit log and when they accessed it.
Overall, the aim is to have enough information to be able to reconstruct the events that have taken place within the HR and payroll systems, as well as to detect any unauthorised or fraudulent activity.
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Audit trail examples in HR and Payroll
Wondering what that looks like in practice? Here are a few examples of how audit trails can be used in HR and payroll systems:
Employee record updates
Audit trails can be used to track changes made to employee records, such as personal information, job title, and salary. This information can be used to investigate disputes or to ensure that employee records are accurate and up-to-date.
Payroll calculations
Audit trails can be used to track the payroll calculations and the approval process. This information can be used to verify that the correct payroll amounts were calculated and paid, as well as to investigate any discrepancies.
Benefits enrollment
Audit trails can be used to track employee enrollment in benefits plans, such as health insurance, pension plans, and other employee benefits. This information can be used to ensure that employees are enrolled in the correct plans and to investigate any disputes or discrepancies.
Time and attendance
Audit trails can be used to track employee time and attendance, including the recording of time worked, absences, breaks and overtime. This information can be used to ensure that employees are paid correctly and to investigate any disputes or discrepancies.
Access to sensitive data
Audit trails can be used to track who has accessed sensitive information, such as payroll and employee records. This information can be used to ensure that access to sensitive data is restricted to authorised personnel only, and to investigate any data breaches.
5 scenarios when you need to reference a HR or payroll audit trail
There are several scenarios in which a HR or payroll audit trail may need to be referenced:
1. Investigating disputes
Audit trails can be used to investigate disputes between employees and management, such as disputes over pay, benefits, or working hours. They can provide a record of the actions taken and help to resolve any discrepancies. Should you end up in an employment tribunal, then audit trails could easily be central to settling the dispute.
2. Compliance with regulations
Audit trails can be used to demonstrate compliance with various regulations, such as employment laws and tax laws. This information can be used to ensure that the business is in compliance with these regulations and to avoid any penalties or fines. In case of a legal dispute, then your business might rely on audit trails to prove your case.
3. Auditing accounts
Audit trails can be used during financial or operational audits to ensure that your payroll and HR records are accurate and complete. For example, in the UK, under the Companies Act 2006, all UK businesses (unless they’re exempt) are required to have their annual accounts audited by an independent external firm. The auditors will expect to see certain information such as audit trails. Audit trails can also be used to support accounting and budgeting processes.
4. Fraud detection
Because they provide an impartial log of all actions, audit trails can be used to detect and investigate any potential fraud within the HR and payroll systems. Audit logs can be used to record, identify and trace any suspicious activities or patterns, as well as to take the necessary actions to prevent future fraud.
5. Improving efficiency
Again, because audit trails log data, this can be used to identify and analyse patterns in the HR and payroll systems. HR and business professionals can use this information and spot opportunities to improve the efficiency and effectiveness of the systems by identifying bottlenecks, errors and inaccuracies, or anything else that is causing friction in the HR or payroll process.
How long should audit trails be kept?
When it comes to keeping records, the length of time that audit trails should be kept will vary depending on the business and the regulations that apply to it. In general, audit trails should be kept for as long as they are needed to meet legal, regulatory, or business requirements, so be aware that you must comply with any relevant national legislation.
In addition to regulatory requirements, it’s prudent to also consider your own internal policies and risk management strategies when determining how long to keep audit trails.
Quinn’s Hero Tip: You should have a retention policy in place that includes the length of time that audit trails will be kept, and the process for disposing of records that are no longer needed. It is also important to have a system that can archive the audit trails and make them easily accessible when needed.
Can you track an audit trail using paperwork or manual processes?
It is of course possible to track an audit trail using paperwork or manual processes, but in this day and age, why would you? Ditch the paper trails if you haven’t already!
Manual processes for tracking an audit trail typically involve physically recording information on paper or in a spreadsheet, such as date and time of the event, user who initiated the event, type of event, and outcome of the event. This information is then stored in a secure location, such as a locked cabinet or a shared drive with restricted access.
Apart from taking up expensive floor space, relying on paper records or manual processes can make it harder to:
- Search, filter and retrieve the specific event you need to access;
- Ensure that the information is accurate, complete and consistent;
- Keep track of who accessed the information and when;
- Keep track of the retention schedule;
- Easily produce reports or share the information with other relevant parties; and
- Maintain the information’s integrity and confidentiality.
It’s also much harder (not to mention less reliable) to present the information and demonstrate compliance with regulations, industry standards and internal policies. For all these reasons and more, we strongly recommend using an automated system for tracking audit trails, especially when it comes to HR. It makes it easier to collect, store, and analyse audit data, and to ensure compliance with regulatory requirements.
Automate audit trails using electronic records
There are several ways to automate the tracking of audit trails using electronic records.
Some common methods include:
- Specialised audit trail software: There are various software solutions available that are specifically designed for the purpose of tracking audit trails. These solutions typically include features such as the ability to log and track changes to electronic records, generate reports, and set up alerts and notifications.
- System logs: Many electronic systems and applications, such as servers, databases, and enterprise resource planning (ERP) systems, have built-in logging capabilities that can be used to track and record events. These logs can be collected, analysed and reported on.
- Security information and event management (SIEM) systems: SIEM systems are designed to collect, analyse, and report on security-related data from various sources, including system logs, network traffic, and other electronic records. They can be used to identify security threats and to track and record audit trails.
- Blockchain technology: Blockchain is a decentralised, distributed ledger technology that can be used to record and track transactions in a secure and transparent way. It can be used to create an immutable audit trail of all changes made to electronic records.
- Cloud-based solutions: Cloud-based solutions such as Employment Hero are ideal for storing and managing electronic records in a secure and accessible way. They can also offer built-in logging and monitoring capabilities, making it easy to track and analyse audit trails.
Regardless of the method chosen, it is important to ensure that the automated audit trail system is properly configured and maintained. All relevant information should be captured, and access to the system should be restricted to authorised personnel only.
Next steps
We hope you are now as big a fan as we are of audit trails – not only can they help protect your business, they improve it immensely too. Not just a pretty trail, right? If you’re on the lookout for better business, HR or payroll solutions, then check out our top tips for choosing the right software.
Still not sure what going digital can do for you? Here’s 11 reasons to switch to HR software, or check out our guide covering all things digital HR.
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