Answer (C) is correct . A common form of payroll fraud involves failure to remove terminated employees from the payroll and the diversion of the payments intended to be made to them. Reconciling time cards, job time tickets, and the payroll may detect this fraud. However, the perpetrator, who may be a supervisor, may be able to falsify the time-keeping records. In that case, a surprise observation of the distribution of payroll may be necessary to detect the fraud.
Answer (A) is incorrect because Mailing checks to employees’ residences does not test the validity of the payroll.
Answer (B) is incorrect because Establishing direct-deposit procedures with employees’ banks does not test the validity of the payroll.
Answer (D) is incorrect because Fraudulent payments may be made within the limits on payroll rates.
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