Costco Payroll Cycle Analysis PDF

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Costco Payroll Cycle Analysis Costco risks/considerations 1. Payroll tax complexity creates risk of incorrect payroll tax withholdings

2. Costco has received recent assessments from taxing authorities and is therefore re-examining payroll tax, among others, to ensure proper accounting treatment and avoid additional costs and liabilities. It will be necessary to design tests of controls, substantive tests of transactions, as well as tests of balances around the payroll tax controls, accounts and transactions as this is a possible area of high risk.

3. Employee tampering with transaction data is especially difficult to detect and yet the processing of these transactions is done by a material number of people. 4. Costco must store and entrust employee data to 3rd party business associates. High number of employees requires care in preventing breaches of personal employee information. This type of issue can become extremely costly. We should consider adding controls testing to ensure data security around private employee information.

5. This lawsuit might be important. Did Costco fail to pay overtime? Wouldn’t hurt to test controls around this, perhaps?

Some relevant Labor data:

1. Effective March 2019, starting and supervisor wages were increased and paid bonding leave was made available for hourly employees in the U.S. and Canada. The estimated annualized pre-tax cost of these increases is approximately $50-$60; 2. SG&A expenses increased as a % of Net sales by two basis points. This increase isn’t significant to trigger alarm relative to Payroll fraud or misstatement and is explained here:

3. Here is an explanation about what the Selling Gen & Administrative costs consist of:

Note here that since the SG&A category also contains data relative to commodity (gas) prices, the category is subject to fluctuations that move with market forces. This means that analyzing the trend does not completely rule out the possibility of aberrations in payroll data. We should still isolate the payroll accounts and test the controls and transactions; controls first to gain confidence and provide scope, then transactions based on a statistically controlled sample.

Looking deeper into the payroll data: By looking at the SG&A trends we can see if there are any blips in the data compared to previous years. SG&A itself has steadily trended upward which would be expected for a growing company. Taken as a percent of sales, we would expect it to remain steady

SG&A 5-year trend 9.00%

10.50%

8.00%

10.40%

7.00% 10.30%

6.00% 5.00%

10.20%

4.00%

10.10%

3.00%

10.00%

2.00%

9.90%

1.00% 0.00% 10/1/2019

10/2/2018

10/3/2017

% Increase/(Decrease) over prior year

8/28/2016

9.80% 8/30/2015

SG&A as a percent of sales

4. Stock-Based Compensation plan could be included in our audit of payroll, in my opinion, if we are needing more content....