Patent Publication Number: US-2004044599-A1

Title: Payment auditing

Description:
TECHNICAL FIELD  
       [0001] The invention relates generally to a method and system for auditing an interest payment received from a payroll outsourcing company. More particularly the invention relates to auditing the interest owed by an outsourcing company on payroll tax deductions received prior to submission to taxing authorities.  
       BACKGROUND OF THE INVENTION  
       [0002] In order to improve productivity, companies may outsource payroll activities to a separate company. One such activity is the remittance of employees&#39; income or wage tax withholdings to various taxing authorities such as the United States Internal Revenue Service, individual state income tax departments and other local taxing authorities. A large company for example may have employees or their payroll who are subject to several hundred different taxing jurisdictions. Furthermore, different employees may have different scheduled paydays depending on various factors such as local custom, job title, local or state labor laws or any other reasons. A large company may have several hundred different payday schedules. The sheer complexity of withholding taxes from employees pay and then remitting the withheld amounts to taxing authorities makes this activity an attractive one to outsource to a company with specific expertise in handling this high level of complexity.  
       [0003] Because of differences between paydays when taxes are withheld and due dates when withheld tax moneys must be remitted, withheld funds can be temporarily invested or deposited in an interest bearing account. When a company outsources this payroll activity the outsourcing company is expected to return some or all of the interest earned to the first company as determined by the outsourcing agreement between the two companies.  
       [0004] Other types of business transaction may have some similarities to this interest bearing model. For example, Nilssen in U.S. Pat. No. 5,083,782 describes paying interest on monetary equivalent certificates such as traveler&#39;s checks. The issuing of monetary equivalent certificates is highly profitable for the issuing entity because certificates remain un-redeemed on the average for a period of time during which interest income may be earned on their money value. In this case, however the issuing agency does not usually know or control the date on which an individual certificate will be redeemed.  
       [0005] Pickering, in U.S. Pat. Nos. 5,483,445 and 5,684,965 describes a credit card type of system in which a customer receives e.g. monthly a single consolidated bill for purchases made during the previous month from a variety of companies on various dates. The central processing office receives a single payment from the customer and then remits payment to all of the companies. With this system some of the companies may receive payment later than they otherwise would if they billed the customer directly themselves. Because of this delay, the companies lose monetary interest for the time of the delay. The central processing facility, therefore may make a payment to the companies to at least partly compensate for interest lost.  
       [0006] Francisco et al. in U.S. Pat. Nos. 5,799,283, 5,875,433, and 6,078,899 describe a sales tax reporting and collection system operating at a retailer location. When a customer purchases an item from the retailer, a system at the point-of-sale calculates the amount of sales tax owed from the customer and automatically forwards the amount of sales tax paid by the customer, to, for example, a state sales tax office computer. The taxing office is therefore ensured that all retail transactions and the sales taxes collected thereon are automatically reported, reducing losses which otherwise occur due to retailers not reporting all (e.g. cash) transactions.  
       [0007] Cretzler, in U.S. Pat. No. 5,644,724 also describes a point-of-sale sales tax collection system. A group of point-of-sale terminals receive and store sales tax collection information from the daily sum of collected taxes. For cash transactions, a bank computer receives the tax collection information. For credit or debit card transactions, a computer at the customer&#39;s bank receives the tax collection information. A tax authority bank receives and processes funds from both the bank computer and the customer&#39;s bank computer. Funds are therefore quickly and efficiently transferred to the taxing authority when due, minimizing loss of interest, due to delays in the payment process.  
       [0008] Golden et al. in U.S. Pat. No. 5,774,872 describe a similar sales tax system in which a central computer periodically interrogates each transaction terminal regarding transactions which have occurred during a period of time. In one embodiment, due to the large number of transaction terminals, data collection sub-stations are interposed between each transaction terminal and the central computer. Each sub-station is directed by the central computer to contact a particular transaction terminal, gather data concerning sales totals and collected tax, and then relay this information to the central computer.  
       [0009] Despite the above advancements in monetary certificates, credit cards, and sales tax collections, no satisfactory solution has been put forth for auditing the complex problem presented above for interest payments by payroll outsourcing activities. Devising such a solution is not a simple task. It is therefore believed that providing such an auditing solution would constitute a significant advancement in the payroll art.  
       OBJECTS AND SUMMARY OF THE INVENTION  
       [0010] It is therefore a principal object of the present invention to provide a method of auditing such a payment.  
       [0011] It is another object to provide a method of auditing with enhanced operational capability.  
       [0012] It is yet another object to provide a system capable of auditing such a payment.  
       [0013] It is a further object to provide a computer program product for instructing a processor to audit such payment.  
       [0014] These and other objects are attained in accordance with one embodiment of the invention wherein there is provided a method of auditing a payment, comprising the steps of, entering a first sequence of payments made to a first party on a series of first dates, entering a plurality of second sequences of payments due to be made by the first party on a corresponding plurality of second dates to a corresponding plurality of second parties, entering an interest rate amount for all dates within the first and second sequences, computing an interest amount earned on the first sequence of payments held by the first party for a pre-specified time period, and comparing the computed interest amount, with a third payment received from the first party.  
       [0015] In accordance with another embodiment of the invention there is provided a system for auditing a payment, comprising, a processor, means for entering a first sequence of payments made to a first party on a series of first dates, into the processor, means for entering into the processor, a plurality of second sequences of payments due to be made by the first party on a corresponding plurality of second dates to a corresponding plurality of second parties, means for entering into the processor, an interest rate amount for all dates within the first and second sequences, software operable on the processor for computing an interest amount earned on the first sequence of payments held by the first party for a pre-specified time period, and means for comparing the computed interest amount, with a third payment received from the first party.  
       [0016] In accordance with yet another embodiment of the invention there is provided a computer program product for instructing a processor to audit a payment, the computer program product comprising a computer readable medium, first program instruction means for entering a first sequence of payments made to a first party on a series of first dates, second program instruction means for entering a plurality of second sequences of payments due to be made by the first party on a corresponding plurality of second dates to a corresponding plurality of second parties, third program instruction means for entering an interest rate amount for all dates within the first and second sequences, fourth program instruction means for computing an interest amount earned on the first sequence of payments held by the first party for a pre-specified time period, and fifth program instruction means for comparing the computed interest amount, with a third payment received from the first party, and wherein all the program instruction means are recorded on the medium. 
     
    
    
     BRIEF DESCRIPTION OF THE DRAWINGS  
     [0017]FIG. 1 is a flowchart illustrating a method of auditing a payment;  
     [0018]FIG. 2 illustrates a system for auditing a payment; and  
     [0019]FIG. 3 is a logic diagram for computing interest earned.  
    
    
     BEST MODE FOR CARRYING OUT THE INVENTION  
     [0020] For a better understanding of the present invention, together with other and further objects, advantages and capabilities thereof, reference is made to the following disclosure and the appended claims in connection with the above-described drawings.  
     [0021] In FIG. 1 there is shown a flowchart of steps of a method of auditing a payment in accordance with the present invention. In step  12  a first sequence of payments made to a first party on a series of first dates are entered into a computing system. The sequence of payments represent taxes withheld from employees&#39; wages on a series of payroll dates. For example, if employees are paid every week on Thursday, then the sequence of payments may be the total amounts of federal income tax withheld from the employees on each of the paydates in a certain month, or certain quarter of a year, or over any other period of time. The first sequence of payments may also include the total amounts of state and local income or wage tax withheld from the employees wages on each of the paydates for each of these taxing authorities. Furthermore, the first sequence may also include amounts withheld from additional groups of employees who are paid on different payroll dates, such as monthly, bimonthly, weekly on some other day, or any to the paydates.  
     [0022] The sequence of payments are made to a first party who is normally a payroll outsourcing company or service. The payments are made to the first party on the paydates on which the employees are paid or shortly before or thereafter. Records listing the sequence of payments made may be entered into a computing system such as system  22  of FIG. 2 by initiating a query over network  30  to a database on a payroll server  32  where the actual payroll and withholding amounts are stored for each employee for each paydate. Query results are returned over the network  30  and entered into system  22 . Other methods of entering data such as those described below may also be used.  
     [0023] In step  14  a plurality of second sequences of payments due to be made by the first party on a corresponding plurality of second dates to a corresponding plurality of second parties is entered into the computing system. The second parties are the taxing authorities to which the outsourcing company must remit the withheld tax amounts which they received on the first series of dates and are temporarily holding. The second dates are the due dates for remitting the withheld amounts. As noted above, each taxing authority decides when withheld taxes are due, sometimes referred to as the filing frequency or deposit date. For example, Table 1 below shows nineteen different filing frequencies currently in use by the several hundred taxing authorities, along with a filing frequency code used in one embodiment of the present invention.  
                   TABLE 1                       CODE   FILING FREQUENCY                  AN   Annually       AM   Accelerated Monthly       AQ   Accelerated Quarterly       D1   Daily       D3   3 Day Due Daily       D5   5 Day Due Daily       FF   Same as Federal Frequency       LD   Limit Driven       MN   Monthly       oM   Octal Monthly       QM   Quarter Monthly       QT   Quarterly       SA   Semi-Annually       SM   Semi-Monthly       SW   Semi-Weekly       T1   Tied to Fed (with a           different daily)       T2   Tied to Fed (daily only)       TF   Tied to Fed       WK   Weekly                  
 
     [0024] For example, the plurality of second sequences may be for a certain period of time such as a month, quarter, year or any other specified period.  
     [0025] Because of the large number of taxing authorities, who may change their filing requirements at any time, frequent changes must be made in determining the actual dates on which the plurality of second sequence of payments are due to be made. The outsourcing company is usually expected to also keep track of these changing requirements in order to insure the plurality of second sequences of payments are made when due. Making payments earlier than due is undesirable because of the lost interest which could have been earned on the held funds. Late payments are also undesirable because of late fees which are usually larger than any additional interest gained by late payments. The outsourcing company is usually expected to bear the burden of either early or late payment. Consequently, in step  14  the payment amounts are entered for the dates when due, regardless of when the outsourcing company actually makes or made the payments.  
     [0026] The sequences in step  14  are entered using any of the techniques used in step  12 .  
     [0027] In step  16  an interest rate amount or percentage is entered into the computer system. The interest rate is applicable for the specific period of time e.g. monthly, quarterly, noted above. For example, a daily interest rate may be entered for each day in the specific period of time. During times of stable interest rates, a single value may apply for the entire period of time. The interest rate may be set by an agreement or contract with the outsourcing company and may also be derived from a published or set rate such as the average of the 3-Month federal funds rate published by the United States Treasury Department. The interest rate may be entered manually, or by any other method including querying the Treasury Department website to obtain the published rates.  
     [0028] In step  18  an interest amount earned on the funds held by the first party is computed for a pre-specified time period. The time period may be a week, a month, a quarter, a day, or any other time period. One such method of computing shown in FIG. 3 is described in detail below.  
     [0029] In step  20  the interest amount computed in step  18  is compared to a third payment from the first party. This third payment is the interest amount received from the outsourcing company for the funds held during the certain period. If the interest amount computed in step  18  is larger, then the outsourcing company has underpaid and may be billed for an underpayment.  
     [0030] In FIG. 2 there is shown a system for auditing a payment in accordance with the present invention. Computing system or processor  22  may have a keyboard  24  and mouse  26  attached for use as entry devices. Other entry devices, not shown, known in the art may also be attached. Computing system  22  may be any type of processing device including a laptop, desktop, tower, palm device, portable, cellphone, mainframe, server or any other type of computer processing device. Processor  22  may be adapted  23  for receiving recorded or recordable media such as floppy disk, compact disk (CD), digital video disk (DVD), zip disk, or tape. Processor  22  may also be attached  28  to a network  30  via any type of network connection including a local area network (LAN), wide area network (WAN), dial up connection, wireless, infrared, or radio frequency connection. One or more servers  32 ,  34  may also be connected via  31  and  33  respectfully to network  30 .  
     [0031] Processor  22  has means for reentering a first sequence of payments made to a first party on a series of first dates. The first dates may be payroll dates. For example, entering data or a file into a memory device within processor  22  may be one way of entering the sequence. A user may enter the sequence by causing data or a file on a remote server  32  or  34  to be transferred over network  30  into processor  22  by means of a query into a database located on the remote server. The database may be a relational database, a spreadsheet, or any other type of database. The first sequence may also be entered manually using input devices such as keyboard  24  or  26  or by inserting a recordable media having the first sequence recorded thereon into media adapter  23 . The means for entering may also include software functions installed on processor  22  or software/hardware combinations.  
     [0032] Processor  22  also has similar means for entering a plurality of second sequences of payments due to be made by the first party on a corresponding plurality of second dates to a corresponding plurality of second parties. The plurality of second sequences may also be data or a file located on a remote server such as  32  or  34 . The second sequences may be payments due to a plurality of taxing authorities including states of the United States of America.  
     [0033] Processor  22  also has similar means for entering an interest rate amount or percentage for all dates within the first and plurality of second sequences.  
     [0034] Software operating on processor  22  is capable of computing an interest amount earned on the fist sequence of payments held by the first party for a pre-specified time period. Any type of software may be used including LOTUS APPROACH™ (LOTUS APPROACH is a trademark of Lotus Development Corp., Cambridge, Mass.), spreadsheet software, VISUAL BASIC® (VISUAL BASIC is a registered trademark of Microsoft Corp., Redmond, Wash.) C++ or any other type of software known in the art. The software computes an interest amount based on the entered rate and first and plurality of second sequences of payments for a particular time period. One way of computing the interest amount is described below in conjunction with the logic diagram of FIG. 3.  
     [0035] Processor  22  also has means for comparing the computed interest amount with a third payment received from the first party. Such means may include a software or hardware or combination comparison of amounts. If there is an underpayment, processor  22  has means for billing the first party for any such underpayment. Means for billing may include printing an invoice or bill which is then mailed to the third party. Other means may include sending an electronic bill such as via e-mail, or via the Internet, or via any electronic billing system.  
     [0036] In FIG. 3 there is shown a logic diagram for computing interest earned in accordance with the present invention. The logic depicted in FIG. 3 may be entered as statements or code into a database such as LOTUS APPROACH where various fields will be operated on to produce an accumulated interest result  41 . Focusing presently on a single first payment date or payday, a file containing the summed up amounts by taxing jurisdiction withheld from all employees paid on that day is entered. For example, a user may run a query to a server. The results may optionally first be put into a spreadsheet for editing and formatting. The spreadsheet data is then entered into a LOTUS APPROACH database such as by use of a copy and paste capability. Running the database software on processor  22  causes the logic of FIG. 3 to calculate the accumulated interest for each taxing jurisdiction and each payday over a specified time period.  
     [0037] For example, box  45  determines whether the taxing jurisdiction is the federal government or has its filing frequency tied to the federal government. If so then box  46  via box  48  determines whether the filing frequency is code T1, T2, D1, LD, TF, FF (see Table 1 above) or whether some other tax code applies in box  47 . If the payday is a Friday, then the funds may be filed on Monday giving two extra days interest in box  49  and day of week box  50 . If the total check amount  54  withheld is less then $100,000 (at present) then the funds may be held longer and paid semi-weekly in box  51  based on the date range  52  and semi-weekly deposit dates  53 .  
     [0038] For taxing jurisdictions not tied to the federal government, logic boxes  55 - 60  determine the actual required filing date based on file frequency code  57 ,  58 ,  59 , date range  56 , and all deposit dates  60 , as specified by the tax code of each jurisdiction.  
     [0039] Interest on funds held for a particular jurisdiction is then computed  42  for the first day based on the amount of funds withheld  43  and interest rate  44  for that day. Iteration of these steps for each day until the funds must be paid provides the accumulated interest  41  result for that payday and jurisdiction. Additional iterations for all jurisdictions and all paydays within the pre-specified time period produces the total computed interest amount earned on the funds held during that time period.  
     [0040] The logic of FIG. 3 serves as one example of computing the interest earned, and is not intended to be limiting. Other variations in logic producing equivalent results will be obvious to those of ordinary skill.  
     [0041] While there have been shown and described what are at present considered the preferred embodiments of the invention, it will be obvious to those skilled in the art that various changes and modifications may be made therein without departing from the scope of the invention as defined by the appended claims.