The Hidden HR Risks CPAs Discover During Financial Reviews (And How to Help Clients Fix Them)

You’re reviewing a client’s financials when something doesn’t quite line up. Accrued compensation jumped. Payroll expense isn’t reconciling cleanly. A termination generated a payment you weren’t expecting. Employment tax deposits don’t seem to match the liabilities reported on Form 941.

You ask the client about it and get an answer every CPA has heard in one form or another: “I think HR handles that.”

Maybe there’s a perfectly reasonable explanation. But now you have a reason to keep asking.

CPAs sit in an unusual position when it comes to workforce risk. Recognizing HR signals helps you guide clients confidently without overstepping, fostering trust and reassurance.

Accrued Compensation Nobody Can Explain

Understanding the details behind accrued compensation is crucial because it reveals how different departments track liabilities and whether their processes align, helping you identify potential risks beyond just the balance sheet figure.

Suppose accrued compensation has been rolling forward for months. You ask for the details and discover finance has one spreadsheet, payroll has another number, HR tracks leave somewhere else, and nobody is entirely sure which one feeds the financial statements.

Now you’re not just looking at a number. You’re looking at a process.

Depending on the company’s policies and circumstances, accrued compensation can include earned but unpaid wages, bonuses, commissions, payroll taxes, and compensated absences. Leave can get particularly messy because whether unused vacation must be paid when employment ends can depend on applicable state law and the employer’s policy. A multistate employer may therefore have different obligations across its workforce.

Your job isn’t just to ask about the liability amount but to ask why it is what it is. Can the client produce the underlying records? Do HR, payroll, and finance agree? When was the last reconciliation?

If nobody can explain the number, that’s a signal worth noting.

The Payroll Report Says “Exempt.” Now What?

This is where CPAs can spot a potential problem without trying to solve the legal question themselves.

You’re reviewing personnel costs and notice that a surprising number of employees are salaried and classified as exempt. You ask how those classifications were determined and hear, “They’re managers.”

That’s a reason to ask another question.

Under the Fair Labor Standards Act, job titles alone do not determine whether an employee qualifies for an exemption from federal minimum-wage and overtime requirements. Take the executive exemption. The Department of Labor’s criteria generally consider factors such as compensation and the employee’s actual duties. The employee’s primary duty generally must be management; they must regularly direct the work of at least two full-time employees or their equivalent, and they must have specified authority or influence over employment decisions.

A payroll report can’t tell you all of that, and neither can a job title.

This is where the boundary matters. A CPA doesn’t need to declare that an employee is misclassified; instead, they should ask whether proper documentation supports the classification.

The financial reason to care is obvious. If a nonexempt employee was incorrectly treated as exempt and worked overtime, potential unpaid wages can accumulate across many pay periods. Under federal law, the general limitations period is two years, which can extend to three years for willful violations. Over several years, a classification question can become a material financial issue for several employees.

ACA Reporting: Look for the Process Behind the Forms

For clients subject to the Affordable Care Act’s employer shared responsibility provisions, benefits administration can create another connection between HR data and financial risk.

The IRS generally classifies an employer as an Applicable Large Employer for a calendar year if it averaged at least 50 full-time employees, including full-time-equivalent employees, during the prior year. ALEs have employer shared responsibility and information-reporting obligations.

Affordability is one area where it’s easy to oversimplify. Because employers generally don’t know an employee’s household income, the IRS provides three affordability safe harbors: Form W-2 wages, rate of pay, and the federal poverty line. An employer can use different safe harbors for reasonable categories of employees if it meets the applicable requirements and applies the approach consistently within those categories.

So seeing different methods isn’t automatically the problem. Not being able to explain them is.

During a review, start by asking who owns ACA administration, how full-time status is determined, and which safe harbors are used. If the answers are vague, that’s when a deeper review makes sense.

I-9 Problems Can Tell You Something About the HR Function

You’re probably not opening personnel files and auditing Forms I-9 during a financial statement review. Nor should you be.

But imagine you’re discussing headcount, onboarding, or payroll records and learn that nobody can clearly explain who handles I-9s. That tells you something about the client’s HR infrastructure.

Federal law generally requires employers to complete Form I-9 for employees hired to work in the United States and retain those forms for required periods. The details matter. Section 2 generally must be completed within three business days of the employee’s first day of employment, and reverification requirements depend on the employee’s work authorization and documentation. Not every expiring document gets reverified.

You don’t need to perform the I-9 review yourself to recognize the larger issue. If the client can’t tell you who owns basic employment documentation, it is reasonable to ask what else may be falling between departments.

One missing document doesn’t prove the HR function is broken. A recurring pattern of “I don’t know who handles that” deserves attention.

Payroll Taxes: Now You’re Back on Familiar Ground

Payroll tax reconciliation is much closer to home. You’re comparing payroll records with Form 941, and something doesn’t match. Maybe it’s timing or a correction. Or perhaps the client missed or underpaid a required federal employment tax deposit.

The IRS generally uses monthly and semiweekly deposit schedules based on the employer’s reported employment tax liability during the applicable lookback period. A $100,000 next-day deposit rule can also apply. The IRS notes that late or insufficient deposits can result in failure-to-deposit penalties, generally ranging from 2% to 15% depending on how late the deposit is. Exceptions and penalty-relief provisions can apply in certain circumstances.

If payroll reports, deposits, and Form 941 don’t reconcile, find out why. Is the employer using the correct deposit schedule? Were corrections properly reflected? Who reviews the reconciliation each quarter? Is this an isolated difference or something that keeps happening?

A recurring discrepancy may tell you more about the payroll process than the tax return.

Termination Payments Deserve Context

A large severance payment can mean many things. The company may have had a contractual obligation, a severance plan, a settlement, or simply decided to make a discretionary payment. The amount itself doesn’t tell you, which is why context matters.

You aren’t trying to determine whether the termination was lawful. You’re trying to understand the financial obligation and whether anything else needs consideration.

What does the payment represent? Was it required under an agreement or policy? Are additional payments still due? Is there a dispute or claim associated with the termination? Does the situation create a potential contingent liability that needs further evaluation?

If the answers lead into employment-law territory, that’s the point to bring in the right professional.

Know When You’ve Found a Question, Not an Answer

A strange payroll accrual doesn’t prove employees were underpaid. A salaried manager isn’t necessarily misclassified. Using multiple ACA affordability safe harbors isn’t automatically incorrect. Weak HR documentation doesn’t prove the company violated employment law, and a large termination payment doesn’t prove there’s a wrongful-termination problem.

They’re signals.

Your value is recognizing when the financial records give you a reason to ask another question. That’s very different from diagnosing the HR problem yourself.

How you raise the issue with the client matters too. Telling them, “You have an HR compliance problem,” is a strong conclusion when you don’t yet know that. A more useful conversation might be: “We found a few workforce-related items during our review that I’d like you to take a closer look at. They may have straightforward explanations, but I want to make sure the HR and payroll records support what we’re seeing financially.”

Now you’re doing what the client hired you to do. You’re paying attention, connecting information across the business, and helping them get ahead of something instead of discovering it later.

When an HR Risk Assessment Makes Sense

If questions keep piling up, a broader HR review may be valuable. Depending on the business, that review could examine employee classifications, payroll practices, multistate employment requirements, ACA administration and reporting, leave policies, employment documentation, onboarding and termination procedures, and other HR compliance processes.

The CPA doesn’t have to perform that work. In fact, there’s value in not trying to. Bring in someone whose job is to examine the HR side while you remain focused on the financial engagement.

Your clients already expect you to notice things they don’t. Sometimes that’s a tax issue, cash flow problem, or internal control weakness. Sometimes the numbers tell you that a problem outside accounting deserves attention.

INFINITI HR works directly with accounting professionals through relationships, including its partnership with the Colorado Society of CPAs, providing HR, payroll, benefits, and compliance support for CPAs and their clients.

That gives you somewhere to take the question. Instead of simply telling the client to talk to someone about HR, you can explain what caught your attention and connect them with a resource equipped to review it.

Help Your Clients Connect the Numbers to the Business

You’re not your client’s HR director, and you don’t need to become one. But you may be one of the first people outside the company to see when its workforce practices start showing up in the numbers.

An unexplained compensation accrual, payroll taxes that don’t reconcile, exempt classifications nobody can support, ACA reporting without a clear owner, or a termination that creates an unexpected financial obligation doesn’t automatically prove something is wrong. It tells you what to ask next.

Sometimes the answer will be perfectly reasonable. Sometimes you’ll help uncover a problem while there’s still time to address it. Either way, you’re doing more than identifying an unusual number. You’re helping the client understand what may be behind it.

Take the Next Step: Let’s Talk About What You’re Seeing

When workforce-related questions surface during a financial review, knowing where to turn can make all the difference.

INFINITI HR works with CPAs and accounting professionals to help their clients navigate HR, payroll, employee benefits, and compliance challenges. Whether you’ve identified a potential concern or simply want to explore how additional HR support could benefit your clients, we’re here to help.

Seeing potential HR risks in your clients’ financials? Let’s start a conversation.

Visit the INFINITI HR Partners page to connect with our team, or reach out directly to jlittler@infinitihr.com.