CPS Auditing Principles & Procedures 3

Question 1

Which internal control best prevents a fictitious employee from being added to the payroll system?

Accepted Answer

Requiring dual authorization for new hire additions

Answer

Dual authorization — requiring two separate approvals to add a new employee — is a key segregation-of-duties control that deters ghost employee fraud.

Question 2

During a payroll audit, which reconciliation most directly confirms that payroll tax deposits match amounts reported on Form 941?

Accepted Answer

Comparing total 941 liabilities to EFTPS payment records

Answer

Comparing the tax liabilities reported on all quarterly Forms 941 to EFTPS deposit records confirms that deposited amounts agree with reported obligations.

Question 3

A payroll auditor is reviewing multistate payroll. Which concept determines which state's income tax should be withheld when an employee works in multiple states?

Accepted Answer

Reciprocity agreements and sourcing rules

Answer

Reciprocity agreements between states and state-specific income sourcing rules determine which state (or states) may tax wages earned by employees working across state lines.

Question 4

When auditing accrued bonuses, what is the IRS rule that determines when a cash-basis employee must include a bonus in gross income?

Accepted Answer

Constructive receipt doctrine

Answer

Under the constructive receipt doctrine, a bonus is taxable when it is made available to the employee without restriction, even if the employee has not yet cashed the check.

Question 5

An auditor finds that a company failed to deposit payroll taxes on time. Which IRS penalty applies to late federal tax deposits?

Accepted Answer

Failure-to-deposit penalty under IRC §6656

Answer

IRC §6656 imposes the failure-to-deposit penalty on employers who do not deposit employment taxes by the required due date, with rates escalating from 2% to 15% based on lateness.

(CPS) Certified Payroll Specialist Practice Test

(CPS) Certified Payroll Specialist Practice Test

CPS Auditing Principles & Procedures 3