Provided below are the questions found in the internal control questionnaire that auditors use to obtain an understanding of internal controls in the payroll cycle. If client's response is a "yes" indicates possible internal control, whereas a "no" indicates a potential deficiency.

For each of the following question, identify the nature of of the potential financial misstatement if the control is not in effect.

- a. b. c. d. e. f. g. h.	Does an appropriate official authorize initial rates of pay and any subsequent changes in rates
- a. b. c. d. e. f. g. h.	Are written notices documenting reasons for termination required?
- a. b. c. d. e. f. g. h.	Are formal records such as time records used for keeping time?
- a. b. c. d. e. f. g. h.	Is approval by a department head required or foreperson required for all time records before they are submitted for payments?
- a. b. c. d. e. f. g. h.	Does anyone verify pay rates, overtime hours, and computations of gross payroll before direct deposits are made?
- a. b. c. d. e. f. g. h.	Do adequate means exist for identifying jobs or products, such as work orders, job numbers, or some similar identification provided to employees to ensure proper coding of time records?
- a. b. c. d. e. f. g. h.	Are payroll direct deposits authorized by persons independent of timekeeping?
- a. b. c. d. e. f. g. h.	Are employees required to show identification when requesting changes to their address or other personal information in company files?

a.	Employees pay is miscalculated.
b.	Incorrect recording of time.
c.	Direct labour is charged to wrong jobs.
d.	Incorrect times are used in computing employees' pay.
e.	Employees are paid the wrong rate.
f.	Payments are made to wrong employees.
g.	Employees are improperly terminated and payment continues.
h.	Payroll payments are made to nonexistent employees.