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ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations

Marlow Co's finance director wants to reduce the risk of fictitious employees being paid through the payroll. Which control would be MOST effective against this specific risk?

Requiring HR to authorise new employees, separate from payroll processing, and periodically checking payroll names against HR records is most effective. This segregation of duties directly addresses fictitious employees, whereas bank transfers, analytical comparisons or automated overtime calculations do not prevent them.

  1. AHaving payroll staff compare total payroll cost with the prior year
  2. BRequiring HR, not payroll staff, to authorise new starters, with periodic checks of names on payroll against HR recordsCorrect
  3. CPaying all employees by bank transfer instead of cash
  4. DCalculating overtime using an automated spreadsheet

Explanation

Fictitious employees are best prevented by segregation of duties: HR authorises starters and payroll processes pay, with periodic reconciliation of payroll to HR records. Bank transfer helps with cash security but a fictitious employee can still be paid to a bank account. Year-on-year comparison is a weak detective check, and automated overtime relates to accuracy.

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