Fundamental Payroll Certification Fundamental Payroll Audits and Record Retention 4 — Questions and Answers
Question 1: An auditor selects a sample of payroll checks and traces them back to approved timesheets and pay rates. This procedure is known as:
- Vouching (Correct answer)
- Tracing
- Observation
- Confirmation
Correct answer: Vouching
Vouching involves working backward from the output (checks) to source documents (timesheets, pay rates) to verify existence and authorization.
Question 2: Which payroll document must be retained for 4 years per IRS guidance and includes evidence of tax deposits made?
- Form W-4
- Employee time cards
- Employment tax records including deposit records (Correct answer)
- Form I-9
Correct answer: Employment tax records including deposit records
IRS Publication 15 requires employment tax records, including proof of tax deposits, to be kept for at least 4 years after the tax due date or payment date.
Question 3: A company conducts a pay equity audit and finds that female employees in identical roles earn 15% less than male counterparts without documented justification. What is the primary legal risk?
- Violation of ERISA
- Potential liability under the Equal Pay Act and Title VII (Correct answer)
- Violation of FLSA overtime rules
- Non-compliance with IRS withholding tables
Correct answer: Potential liability under the Equal Pay Act and Title VII
Unjustified pay disparities based on gender expose employers to claims under the Equal Pay Act and Title VII of the Civil Rights Act.
Question 4: Which of the following best describes a 'payroll register'?
- A log of all IRS tax deposits made by the employer
- A detailed record showing each employee's gross pay, deductions, and net pay for a pay period (Correct answer)
- A summary of annual W-2 wages for all employees
- A ledger of all direct deposit transactions
Correct answer: A detailed record showing each employee's gross pay, deductions, and net pay for a pay period
The payroll register is the primary payroll document listing earnings, deductions, and net pay for each employee per pay period.
Question 5: An employer uses electronic timekeeping. During a payroll audit, which control should auditors verify to ensure data integrity?
- That supervisors can modify employee clock-in times without restriction
- That system access is restricted and all time edits are logged with user ID and timestamp (Correct answer)
- That employees can self-approve their own timesheets
- That paper backup timecards are maintained even when electronic systems are used
Correct answer: That system access is restricted and all time edits are logged with user ID and timestamp
An audit trail of all edits, including who made changes and when, is the key internal control for electronic timekeeping integrity.
Question 6: Under the FLSA, records showing time and day the workweek begins must be kept for how long?
- 1 year
- 2 years (Correct answer)
- 3 years
- 4 years
Correct answer: 2 years
FLSA requires that basic employment and earnings records, including workweek start records, be retained for 2 years.
Question 7: An employer receives a Notice of Levy (IRS Form 668-W) for an employee's wages. During a payroll audit, what should be verified?
- That the levy was ignored until a court order was received
- That the levy was applied correctly and wage exempt amounts were calculated per IRS Publication 1494 (Correct answer)
- That the full net pay was remitted to the IRS each period
- That the employee was terminated upon receipt of the levy
Correct answer: That the levy was applied correctly and wage exempt amounts were calculated per IRS Publication 1494
Employers must apply the wage levy correctly, using IRS Publication 1494 to calculate the exempt amount the employee retains.
Fundamental Payroll Certification Fundamental Payroll Audits and Record Retention 4
An auditor selects a sample of payroll checks and traces them back to approved timesheets and pay rates.
This procedure is known as: