OCPS OCPS Payroll Auditing & Internal Controls 1 — Questions and Answers
Question 1: What is the primary purpose of a payroll internal audit?
- To increase employee salaries
- To verify accuracy, compliance, and prevent fraud in payroll operations (Correct answer)
- To replace the payroll department
- To calculate quarterly bonuses
Correct answer: To verify accuracy, compliance, and prevent fraud in payroll operations
Payroll internal audits verify that payroll processes are accurate, compliant with regulations, and protected against fraud or errors.
Question 2: Which control helps prevent a single employee from both adding new hires and processing payroll?
- Dual authorization
- Segregation of duties (Correct answer)
- Encryption
- Outsourcing
Correct answer: Segregation of duties
Segregation of duties divides key payroll functions among different employees to reduce the risk of errors and fraud.
Question 3: What is a 'ghost employee' in the context of payroll fraud?
- A remote worker paid via direct deposit
- A fictitious or terminated employee whose wages are fraudulently collected (Correct answer)
- A seasonal employee on unpaid leave
- An employee with an anonymous HR file
Correct answer: A fictitious or terminated employee whose wages are fraudulently collected
A ghost employee is a fictitious or terminated individual left on the payroll so that someone can fraudulently collect their wages.
Question 4: Which document is most commonly reviewed during a payroll audit to verify headcount accuracy?
- W-4 forms only
- Active employee roster cross-referenced with HR records (Correct answer)
- Quarterly earnings reports alone
- Benefit enrollment forms
Correct answer: Active employee roster cross-referenced with HR records
Auditors cross-reference the active employee roster with HR records to confirm that only legitimate, active employees are being paid.
Question 5: What is a 'three-way match' in payroll auditing?
- Matching federal, state, and local tax rates
- Verifying hours worked, approved timesheets, and pay stubs align (Correct answer)
- Comparing three consecutive payroll cycles
- Matching employee name, SSN, and bank account
Correct answer: Verifying hours worked, approved timesheets, and pay stubs align
A three-way match in payroll auditing confirms that hours worked, approved time records, and issued pay stubs are all consistent with each other.
Question 6: How often should organizations conduct payroll reconciliations as a best practice?
- Only annually during tax season
- At least monthly, comparing payroll registers to general ledger entries (Correct answer)
- Every five years
- Only when an audit is scheduled
Correct answer: At least monthly, comparing payroll registers to general ledger entries
Monthly payroll reconciliations compare payroll registers to general ledger entries to catch discrepancies early and maintain accurate financial records.
OCPS OCPS Payroll Auditing & Internal Controls 1
What is the primary purpose of a payroll internal audit?