Which practice is NOT acceptable to an external auditor?

• A. The accounting department reconciling the payroll checking account
• B. The payroll supervisor verifying deposits are made timely
• C. Storage of blank payroll checks in the payroll department
• D. The treasury department being responsible for the signature of payroll checks

Answer: (C)

Safeguarding cash and enforcing segregation of duties are the main ideas here. Storing blank payroll checks in the payroll department creates an opportunity for misuse because the same area that prepares payroll would have access to the blank instruments and could initiate or alter payments without immediate oversight. External auditors expect blank check stock to be kept secure and under dual custody, with strict tracking of who has access and when it’s used. This minimizes the risk of fraud or unauthorized disbursements.

The other practices align with good internal controls. Having the accounting department reconcile the payroll checking account provides independent verification of cash activity. The payroll supervisor verifying that deposits are made timely helps ensure compliance and accurate cash handling. Assigning signature authority to the treasury department separates disbursement duties from processing, further strengthening control over payroll payments.