Analytical Procedures - Payroll Expense

Company is a privately held one with a 12/31 year-end. The company owned 133 restaurants in 2017. Each location employees 32 hourly employees on average and each employee works approximately 8 hours of overtime per week.

The internal audit team is testing payroll expense for 2018 and you, as the internal audit assistant, were asked to perform analytical procedures on this expense.

Below is the data you obtained from the payroll department for the prior year - 2017:

2017

2018

# of employees

4,256

Average hourly rate per hour

$14.50

Average employee hours per week

48

Regular hourly payroll expense

$128,180,000

Overtime hourly payroll expense

$38,454,000

Total payroll expense

$166,634,000

$161,253,989*

*provided by the payroll department

Here are some additional 2018 facts based on inquiries you conducted of the corporate controller and the payroll manager:

43 new restaurants were opened on October 1, 2018.

Each restaurant employees 32 hourly employees.

Overtime pays at a rate of time and a half.

Management implemented a strategy that reduces overtime by 50% per employee compared to 2017.

There were no raises for hourly employees.

Assume each employee works 40 regular hours per week.

Assume 52 weeks per year.

Determine whether based on your expectation this expense needs to be investigated further and how you would go about doing that. Explain (in a text box or separate tab of your excel file) the logic or thought process behind your determination.