Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 46

A payroll clerk enters payroll transactions into the general ledger. The staff accountant reconciles the payroll ledgers. The payroll manager issues the manual payroll checks. The checks are maintained in a locked cabinet. The chief financial officer secures the keys to the cabinet. The payroll clerk distributes the manual checks.
The payroll manager reconciles the bank statements monthly. Which of the following audit steps best addresses the risk of fraud in the payroll process?

Answer options

• A. Examine whether the payroll manager approves the reconciliations of ledgers.
• B. Determine whether an approved list of voided checks exists.
• C. Determine whether the cabinet keys are secured properly.
• D. Vouch a sample of items on bank reconciliations to supporting documentation.

Correct answer: D

Explanation

The correct answer is D because vouching a sample of items on bank reconciliations to supporting documentation helps verify the accuracy and legitimacy of transactions, reducing the likelihood of fraud. Options A, B, and C do not directly validate the transactions themselves or ensure that the recorded payroll expenses are accurate and legitimate.