OCPS Risk Assessment & Mitigation 3 — Questions and Answers
Question 1: Which scenario BEST illustrates inherent risk in a payroll context?
- Risk remaining after all controls are applied
- Risk present before any mitigating controls are implemented (Correct answer)
- Risk transferred to a third-party payroll provider
- Risk identified during an internal audit
Correct answer: Risk present before any mitigating controls are implemented
Inherent risk is the natural level of risk in a process or activity before any controls are applied to reduce it.
Question 2: An organization implements automated payroll tax withholding calculations. This change PRIMARILY reduces which type of risk?
- Reputational risk from late filings
- Manual calculation error risk (Correct answer)
- Cyber intrusion risk
- Employee relations risk
Correct answer: Manual calculation error risk
Automating calculations eliminates human arithmetic errors, directly reducing the risk of incorrect tax withholdings.
Question 3: Which IRS penalty scenario represents the highest financial risk for late payroll tax deposits?
- 2% penalty for deposits 1-5 days late
- 15% penalty for amounts still unpaid after 10 days past the IRS notice (Correct answer)
- 5% penalty for deposits 6-15 days late
- 10% penalty for deposits more than 15 days late
Correct answer: 15% penalty for amounts still unpaid after 10 days past the IRS notice
The IRS imposes a 15% penalty on payroll tax amounts that remain unpaid 10 days after an IRS demand notice, representing the highest tier.
Question 4: A risk register entry shows a payroll fraud scenario with likelihood=3 and impact=4 on a 5-point scale. What is the risk score?
- 7
- 12 (Correct answer)
- 1.33
- 20
Correct answer: 12
Risk score is calculated by multiplying likelihood by impact: 3 × 4 = 12.
Question 5: Which payroll practice BEST mitigates the risk of fictitious employee ('ghost employee') fraud?
- Requiring all employees to use direct deposit
- Periodic headcount reconciliation between HR and payroll records (Correct answer)
- Implementing a biometric time-tracking system
- Outsourcing payroll to a third-party provider
Correct answer: Periodic headcount reconciliation between HR and payroll records
Regular reconciliation of active employee lists between HR and payroll departments catches ghost employees that exist only in payroll records.
Question 6: Under FLSA, which misclassification risk poses the GREATEST financial exposure to an employer?
- Classifying a full-time employee as part-time
- Incorrectly classifying a non-exempt employee as exempt from overtime (Correct answer)
- Enrolling hourly workers in the wrong benefits tier
- Assigning incorrect job titles in payroll records
Correct answer: Incorrectly classifying a non-exempt employee as exempt from overtime
Misclassifying non-exempt employees as exempt can result in back pay liability for all unpaid overtime plus liquidated damages and legal fees.
Question 7: A business continuity plan for payroll should PRIMARILY ensure which capability during a system outage?
- Employees can access their pay stubs online
- Payroll can be processed and employees paid on time using alternate procedures (Correct answer)
- Payroll staff can work remotely from any location
- Payroll tax filings are automatically extended
Correct answer: Payroll can be processed and employees paid on time using alternate procedures
The primary goal of BCP for payroll is maintaining the ability to pay employees accurately and on time even when normal systems are unavailable.
OCPS Risk Assessment & Mitigation 3
Which scenario BEST illustrates inherent risk in a payroll context?