Which payroll controls are commonly used to prevent fraud?

Which payroll controls are commonly used to prevent fraud?

• A. One person handles all payroll processing.
• B. Segregation of duties, authorized payroll changes, timekeeping controls, regular audit of payroll, independent distribution of checks.
• C. Only payroll tax withholding needs control.
• D. Payroll controls are unnecessary for small businesses.

Answer: (B)

Preventing payroll fraud relies on strong internal controls that create checks and balances across the payroll process. Segregating duties means different people handle preparation, approval, and distribution, so no single person can manipulate the system from start to finish. Only authorized payroll changes get processed, ensuring that adjustments to pay rates, hires, terminations, or deductions come from approved decisions rather than covert edits. Timekeeping controls keep hours and attendance accurate, reducing risks like ghost employees or inflated overtime. Regular audits of payroll help detect errors or fraudulent activity early and reinforce accountability. Independent distribution of checks ensures the person who prepares payroll isn’t also the one who hands out cash or distributes pay, further curbing opportunities for theft. Together, these layered controls form a comprehensive defense against common payroll fraud schemes.

Preventing payroll fraud relies on strong internal controls that create checks and balances across the payroll process. Segregating duties means different people handle preparation, approval, and distribution, so no single person can manipulate the system from start to finish. Only authorized payroll changes get processed, ensuring that adjustments to pay rates, hires, terminations, or deductions come from approved decisions rather than covert edits. Timekeeping controls keep hours and attendance accurate, reducing risks like ghost employees or inflated overtime. Regular audits of payroll help detect errors or fraudulent activity early and reinforce accountability. Independent distribution of checks ensures the person who prepares payroll isn’t also the one who hands out cash or distributes pay, further curbing opportunities for theft. Together, these layered controls form a comprehensive defense against common payroll fraud schemes.