CPP CPP Quality & Compliance 4 — Questions and Answers
Question 1: Under the Electronic Fund Transfer Act, an employer may require direct deposit of wages ONLY if:
- The employer provides at least two bank options for the employee to choose from
- State law explicitly permits mandatory direct deposit and the employer complies with any state requirements (Correct answer)
- The employee has been employed for more than 90 days
- The employer pays for any bank fees the employee incurs
Correct answer: State law explicitly permits mandatory direct deposit and the employer complies with any state requirements
Whether mandatory direct deposit is permissible depends on state law; some states prohibit it, while others allow it with conditions such as employee choice of financial institution.
Question 2: A payroll manager is reviewing a Certified Payroll Report (WH-347) for a federal prevailing wage project. Which law requires this report?
- The Fair Labor Standards Act
- The Davis-Bacon Act (Correct answer)
- The McNamara-O'Hara Service Contract Act
- The Walsh-Healey Public Contracts Act
Correct answer: The Davis-Bacon Act
The Davis-Bacon Act requires contractors on federal construction projects to pay prevailing wages and submit certified payroll reports on Form WH-347 to the contracting agency.
Question 3: An employee's Form W-4 is submitted with an invalid status claim. Under IRS guidance, what should the employer do?
- Withhold at the single rate with no adjustments until a valid W-4 is received
- Return the W-4 and refuse to process payroll until corrected
- Contact the IRS immediately to report the employee
- Apply the prior valid W-4 on file, or withhold at single/zero if no prior W-4 exists (Correct answer)
Correct answer: Apply the prior valid W-4 on file, or withhold at single/zero if no prior W-4 exists
If a W-4 is invalid, the employer should withhold based on the most recently valid W-4 on file, or at the default single/zero allowances rate if no valid prior W-4 exists.
Question 4: Which payroll record retention period is required under the FLSA for payroll records such as time cards and work schedules?
- 1 year
- 2 years
- 3 years (Correct answer)
- 7 years
Correct answer: 3 years
The FLSA requires that supplementary records such as time cards, work schedules, and records of additions or deductions be retained for at least 2 years.
Question 5: A company processes payroll using an outside service bureau. From an internal controls perspective, the company should PRIMARILY obtain which document annually from the service bureau?
- A copy of the service bureau's insurance policy
- A SOC 1 Type II report covering payroll processing controls (Correct answer)
- The service bureau's employee handbook
- A list of the service bureau's IT system specifications
Correct answer: A SOC 1 Type II report covering payroll processing controls
A SOC 1 Type II report provides an independent auditor's assessment of the service bureau's internal controls over financial reporting, which is essential for the company's own control environment.
Question 6: Under FICA, what happens to the employee's Social Security tax withholding when cumulative wages exceed the annual Social Security wage base?
- Social Security tax continues at a reduced rate of 3.1%
- Social Security tax withholding stops for the remainder of the year (Correct answer)
- The rate increases to 2.9% for wages above the base
- Medicare withholding also stops once the wage base is reached
Correct answer: Social Security tax withholding stops for the remainder of the year
Once an employee's wages exceed the Social Security wage base for the year, no additional Social Security tax (6.2%) is withheld for that employee for the rest of the year.
Question 7: A payroll audit reveals that a department manager has been approving time records for employees who report to a different department. This violates which internal control principle?
- Access controls
- Dual authorization
- Proper authorization and segregation of duties (Correct answer)
- Physical security controls
Correct answer: Proper authorization and segregation of duties
Proper authorization requires that only those with supervisory authority over the employees approve their time records; approving records outside one's span of control violates authorization and segregation-of-duties principles.
CPP CPP Quality & Compliance 4
Under the Electronic Fund Transfer Act, an employer may require direct deposit of wages ONLY if: