3) Identify the firm below where employees’ knowledge is likely to be more valuable than the
value of a company’s tangible assets.
A) international airline
B) law firm
C) automobile manufacturer
D) railroad
4) True or False: Batch processing continues to be widely used to process payroll transactions.
5) Knowledge management systems (KMS) permit organizations to
A) store employee solutions to specific problems in a shared database.
B) learn from individuals external to the organization.
C) perform background checks on potential employees.
D) gain competitive business intelligence on competitors.
15.3 Identify the major threats in the HRM/payroll cycle and evaluate the adequacy of various
internal control procedures for dealing with them.
1) Why is a separate payroll account used to clear payroll checks?
A) for internal control purposes, to help limit any exposure to loss by the company
B) to make bank reconciliation easier
C) Banks don’t like to commingle payroll and expense checks.
D) All of the above are correct.
2) The following control can reduce the distribution of fraudulent paychecks.
A) Have internal audit investigate unclaimed paychecks.
B) Allow department managers to investigate unclaimed paychecks.
C) Immediately mark “void” across all unclaimed paychecks.
D) Match up all paychecks with time cards.
3) When using electronic documents, ________ increase(s) the accuracy of data entry.
A) access controls
B) separation of duties
C) general controls
D) application controls
4) The most vital control in preventing unauthorized changes to the payroll master file is
A) hiring totally honest people to access and make changes to this file.
B) segregation of duties between the preparation of paychecks and their distribution.
C) segregation of duties between the authorization of changes and the physical handling of
paychecks.
D) having the controller closely review and then approve any changes to the master file.
5) Which of the following is not a potential effect of inaccurate data on employee time cards?
A) increased labor expenses
B) erroneous labor expense reports
C) damaged employee morale
D) inaccurate calculation of overhead costs
6) Which control would be most appropriate to address the problem of inaccurate payroll
processing?
A) encryption
B) direct deposit
C) cross-footing of the payroll register
D) an imprest payroll checking account
7) The purpose of a general ledger payroll clearing account is
A) to check the accuracy and completeness of payroll recording and its allocation to cost centers.
B) to make the bank reconciliation easier.
C) to make sure that all employees are paid correctly each week.
D) to prevent the cashier from having complete control of the payroll cycle.
8) A “zero balance check” refers to which of the following control procedures?
A) a type of batch total
B) cross-footing the payroll register
C) the payroll clearing account shows a zero balance once all entries are posted
D) trial balance showing that debits equal credits
9) All of the following are controls that should be implemented in a payroll process, except
A) supervisors distribute paychecks since they should know all employees in their department.
B) someone independent of the payroll process should reconcile the payroll bank account.
C) sequential numbering of paychecks and accounting for the numbers.
D) restrict access to blank payroll checks and documents.
10) What is the best control to reduce the risk of losing payroll data?
A) passwords
B) physical security controls
C) backup and disaster recovery procedures
D) encryption
11) The threat of violation of employment laws relates directly to which activity?
A) payroll processing
B) collecting employee time data
C) hiring and recruiting
D) all of the above
12) What is a potential threat to the specific activity of payroll processing?
A) hiring unqualified employees
B) poor system performance
C) violations of employment laws
D) unauthorized changes to the payroll master file
13) The results of an internal audit finds that there is a problem with inaccurate time data being
entered into the payroll system. What is an applicable control that can help prevent this event
from occurring in the future?
A) proper segregation of duties
B) automation of data collection
C) sound hiring procedures
D) review of appropriate performance metrics
14) Which of the following is a control that can be implemented to help prevent paychecks being
issued to a “phantom” or “ghost” employee?
A) The cashier should sign all payroll checks.
B) Sequentially prenumber all payroll checks.
C) Use an imprest account to clear payroll checks.
D) Paychecks should be physically distributed by someone who does not authorize time data or
record payroll.
15) The average annual management salary at Iyov Management is $80,000. If the average
turnover rate for employees is ten per year, what is the approximate average annual cost of
turnover?
A) $80,000
B) $400,000
C) $800,000
D) $1,200,000
16) Which of the following will limit a firm’s potential loss exposure from paycheck forgery?
A) segregation of check distribution from payroll duties
B) prompt redeposit of unclaimed paychecks
C) a separate payroll bank account
D) direct deposit of checks
17) Which of the following is a control that addresses the threat of unauthorized changes to the
payroll master file?
A) field checks
B) batch totals
C) segregation of duties
D) sound hiring procedures
18) For the payroll register below, all the following data entry controls would be useful except
A) validity check on Fed. Tax
B) sequence check on Employee No.
C) limit check on Hours
D) field check on Pay Rate
19) For the payroll register below, all the following processing controls would be useful except
A) concurrent update control
B) cross-footing balance test
C) mathematical accuracy test
D) hash total on Employee No.
20) Describe benefits and threats of incentive and bonus programs.
21) Explain benefits to companies and to employees of using electronic direct deposit for
payroll.
22) What factors should be considered in outsourcing payroll to a payroll service bureau?
Discuss the advantages and disadvantages of using a payroll service bureau to process a payroll.
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23) Discuss the threat of unauthorized changes to the payroll master file and its consequences.
24) What controls are available to address the threat of payroll errors?
25) Using financial incentives requires organizations to
A) pay employees less than they would have to if pay was a fixed salary.
B) better monitor employee attendance.
C) link the payroll system to other cycles to calculate incentive payments.
D) better monitor employee effort.
26) Source data automation is often effective in reducing
A) unintentional errors.
B) intentional errors.
C) accuracy.
D) theft.
27) A payroll clearing account is used to
A) check the accuracy of payroll costs.
B) speed up payroll transaction processing.
C) reduce the transaction costs associated with payroll transaction processing.
D) eliminate the need to manually record payroll transactions.
28) All of the following regarding payroll checks is correct except
A) access to payroll checks should be restricted.
B) payroll checks should be sequentially pre-numbered.
C) payroll checks should be drawn on the organization’s regular bank account(s).
D) the cashier should sign payroll checks.
29) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM /
payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding
payroll disbursement processes. For strongest segregation of duties, the ________ should
distribute paychecks.
A) accounts payable department
B) cashier
C) internal audit department
D) external auditor
30) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM /
payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding
payroll disbursement processes. For strongest segregation of duties, the ________ should record
payroll.
A) accounts payable department
B) cashier
C) internal audit department
D) external auditor
31) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM /
payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding
payroll disbursement processes. For strongest segregation of duties, the ________ should
periodically observe the paycheck distribution process.
A) accounts payable department
B) cashier
C) internal audit department
D) external auditor