OCPS OCPS Payroll Auditing & Internal Controls 2 — Questions and Answers
Question 1: Which of the following is a key indicator of potential payroll fraud detected during an audit?
- Consistent pay rates across a department
- Employees with no listed address or multiple employees sharing a bank account (Correct answer)
- All employees receiving direct deposit
- Year-over-year payroll costs that match budget projections
Correct answer: Employees with no listed address or multiple employees sharing a bank account
Employees with no listed address or multiple employees sharing the same bank account are red flags that may indicate ghost employee or fraudulent payroll schemes.
Question 2: What is the role of an audit trail in payroll systems?
- To speed up payroll processing
- To provide a chronological record of all changes made to payroll data (Correct answer)
- To automatically correct payroll errors
- To replace manual timekeeping
Correct answer: To provide a chronological record of all changes made to payroll data
An audit trail records every change to payroll data with timestamps and user IDs, enabling auditors to trace unauthorized or erroneous modifications.
Question 3: Which internal control requires a second approver before a payroll run is finalized?
- Access logging
- Dual authorization or dual approval (Correct answer)
- Password complexity requirements
- Automated tax filing
Correct answer: Dual authorization or dual approval
Dual authorization requires a second authorized person to review and approve payroll before it is processed, reducing the risk of unauthorized payments.
Question 4: During a payroll audit, what does 'reconciling payroll taxes' involve?
- Negotiating lower tax rates with the IRS
- Confirming that amounts withheld from employees match amounts remitted to tax authorities (Correct answer)
- Filing amended W-2s for all employees
- Reclassifying employees as independent contractors
Correct answer: Confirming that amounts withheld from employees match amounts remitted to tax authorities
Reconciling payroll taxes means verifying that the amounts withheld from paychecks equal the amounts deposited with federal, state, and local tax agencies.
Question 5: What is a 'surprise audit' in payroll, and why is it used?
- An unannounced review of payroll records to deter and detect ongoing fraud or errors (Correct answer)
- An annual scheduled review mandated by the IRS
- A routine monthly payroll reconciliation
- An employee satisfaction survey about payroll accuracy
Correct answer: An unannounced review of payroll records to deter and detect ongoing fraud or errors
Surprise audits are unannounced reviews that deter fraudulent behavior because employees cannot prepare or conceal irregularities in advance.
Question 6: Which report is most useful for auditing overtime pay accuracy?
- Annual W-2 summary
- Detailed time and attendance report showing hours per employee per pay period (Correct answer)
- Benefit deduction ledger
- Quarterly 941 tax filing
Correct answer: Detailed time and attendance report showing hours per employee per pay period
A detailed time and attendance report shows exact hours worked each period, allowing auditors to verify that overtime was correctly calculated and authorized.
OCPS OCPS Payroll Auditing & Internal Controls 2
Which of the following is a key indicator of potential payroll fraud detected during an audit?