An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing to:

(1) Verify that payroll taxes are deducted from employees’ gross pay.

(2) Determine whether internal control activities are operating effectively.

(3) Uncover fictitious employees who are receiving payroll cheques.

(4) Identify potential liabilities for unpaid payroll taxes.

The above questions concern internal controls in the payroll and personnel cycle. Choose the best response.