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HomeMy WebLinkAboutAudit Reports - Public - Glendale Payroll / Human Resources & Risk Management - Payroll Analytics Project - 4/29/2026 Glendale Payroll / Human Resources & Risk Management Payroll Analytics Project April 29, 2026 Independent Internal Audit Program 1 Independent Internal Audit Program Payroll Analytics Project Table of Contents Executive Summary 2 A. Introduction 3 B. Background 3 C. Objective 3 D. Key Outcomes 3 E. Project Results & Recommendations 3 F. Process Improvement Opportunities 6 G. Project Scope & Methodology 6 H. Data Reliability 6 2 Independent Internal Audit Program Payroll Analytics Project Executive Summary As part of the FY 2026 Audit Plan approved by the City Council, the City of Glendale's Independent Internal Audit Program (IIAP) conducted a pilot project using various payroll analytics. The project was performed to assess the development and implementation of payroll analytics to help with continuously monitoring identified controls. Project Objectives: The main objective of this project was to assess the effectiveness of analytics when certain established criteria (determined by IIAP) are met during each payroll run. If successful, this would allow for review of only limited samples that meet said criteria, rather than testing entire payroll run populations in future audits. Project Conclusions: Overall, the payroll analytics worked as intended and identified smaller groups of data to research for possible exceptions to policy. However, the contract with our third-party vendor that built the analytics has now expired and will not be renewed. Based on initial discussions with our Innovation & Technology (IT) department, there is an opportunity to build our own analytics in-house, perhaps leveraging AI technology, to produce more robust and targeted outcomes. Findings: As this was a pilot project, there were no findings to report. This exercise was to assess the effectiveness of select analytics and explore opportunities to enhance them. Descriptions of the analytics employed, along with results from samples that were tested for each, can be found on the following pages. 3 Independent Internal Audit Program Payroll Analytics Project A. Introduction The City of Glendale's Independent Internal Audit Program (IIAP) conducted a pilot project utilizing various payroll analytics. As a one-person audit shop, IIAP is trying to leverage technology to expand audit coverage across the city where feasible. B. Background With help from one of our contracted vendors and the city’s IT department, four analytics were built to run after each bi-weekly pay period was complete. The analytics were designed to identify potential concerns that hit certain thresholds as determined by the IIAP Manager. The analytics were related to authorization of paying overtime (OT) hours, pay increases of 10% or more from the prior year, pay increases of 10% or more from the prior pay period, and terminated employees that were still receiving a paycheck. Samples were selected from each category of analytics, and HR/Payroll staff were consulted for explanations and supporting documentation. C. Objective The main objective of this project was to assess the effectiveness of analytics when certain established criteria (determined by IIAP) are met during each payroll run. If successful, this would allow for review of only limited samples that meet said criteria, rather than testing entire payroll run populations in future audits. D. Key Outcomes Overall, the payroll analytics worked as intended and identified smaller groups of data to research for possible exceptions to policy. IIAP verified that for the various samples selected, sufficient documentation (hard copy and/or in MUNIS) existed to show proper authorization for the payroll actions taken. No exceptions were noted. E. Project Results Analytic 1: Identify all staff with any overtime (OT) hours paid in the pay period. OT Pay Authorization: The way non-regular pay is recorded in MUNIS can easily lead to confusion. A standard pay period for a full-time employee is generally 80 hours (but may differ for Fire Services personnel). The total number of hours in an actual two-week period is 336 (24 hours X 14 days). However, the analytic routinely generated employees with hundreds of OT hours worked on top of their regular hours – far exceeding actual time limitations. This is due to the way MUNIS compiles hours by layering the different pay types upon each other. 4 Independent Internal Audit Program Payroll Analytics Project For instance, Police employees may have regular hours, overtime, stadium event staffing, SWAT callout and training, detention staffing, bilingual pay, shift differentials, and several other options. Fire employees could have some of the above, along with HazMat pay, specialty tech pay, paramedic pay, manpower backfill, and others. Simply due to the nature of their duties, Police and Fire tend to have the most OT hours. However, Water Services, Transportation, and Field Operations routinely have employees with OT hours worked as well. Testing/Results For the pay period ending August 22, 2025, IIAP selected 15 employees across seven different departments who earned OT pay. The number of OT hours ranged from 108.50 to 631, due to the aforementioned system configurations/limitations. IIAP worked with the Payroll group within Budget & Finance and the HRIS team within Human Resources to review documentation related to authorization and approval of the various pay types submitted for that paycheck. IIAP was able to verify the actual amount of hours physically worked (including standby/on-call pay) and see how the additional pay types were layered on top of actual hours that skewed the numbers reported when the analytics were run. All reported hours in the sample were approved by the employee’s supervisor and/or designated timekeeping person in accordance with their department’s procedures. No exceptions were noted. Analytic 2: Employees with a pay increase of 10+% from the prior year. Through the city’s annual employee evaluation process, it is normal that staff can receive an increase in pay with two components. There can be a merit increase based on their performance (depending on their specific evaluation rating), and there could be a citywide cost of living adjustment (COLA) for all non-sworn staff as approved by city council. These scheduled increases go into effect at the beginning of each fiscal year upon final approval/adoption of the city budget. Generally, the maximum of the two components combined would result in a seven or eight percent increase for an individual employee. The analytic threshold of 10% or more was designed to identify employees who had a year-over-year increase that exceeds the annual evaluation process. Testing/Results For the pay period ending August 22, 2025, IIAP selected five employees across four departments whose paycheck was at least 30% more than the corresponding pay period of one year prior (August 23, 2024). IIAP worked with the Payroll group within Budget & Finance and the HRIS team within Human Resources to determine the reason for the increase and review any associated supporting documentation. IIAP was able to verify that all increases were due to a number of factors, including a combination of annual merit/COLA, a promotion to a new title with a higher pay range, a market adjustment following an exercise completed by HR, and/or OT hours reported in the new pay period. 5 Independent Internal Audit Program Payroll Analytics Project All reported hours in the sample were approved by the employee’s supervisor and/or designated timekeeping person in accordance with their department’s procedures. All changes in pay levels were adequately documented and approved for entry into the system. No exceptions were noted. Analytic 3: Terminated employees with Regular pay in a pay period. When an employee separates from the city, their termination date stays in the system permanently. Depending on the date of employment separation, there could be a final paycheck due to the employee after said date for final hours worked, along with payouts for accrued vacation and/or sick time. There normally would be no additional paychecks issued after that one. This analytic was designed to identify employees who were issued a paycheck for regular hours worked following their system termination date. Testing/Results For the pay period ending August 22, 2025, IIAP selected five employees across four departments who had previously separated from city employment. IIAP worked with the Payroll group within Budget & Finance and the HRIS team within Human Resources to determine why regular hours were being reported and paid for these individuals. IIAP was able to verify that all five employees had resigned from the city and then been rehired at a later date. Four were rehired to new titles and/or job duties; the remaining person was rehired into their old position after a two-year stint with another employer. All rehires were approved by the hiring department’s director and/or the City Manager’s Office. No exceptions were noted. Analytic 4: Employees with a pay increase of 10+% from the prior pay period. For salaried, exempt staff (ineligible for OT pay), it is unusual for an increase in pay to occur outside of the first paycheck in each new fiscal year. As noted in Analytic 2 (above), there are several factors that can produce pay changes. The analytic threshold of 10% or more was designed to identify employees who had a significant increase from the previous pay period, excluding the first paycheck of the new fiscal year. Testing/Results For a range of pay periods spanning February through June of 2025, IIAP selected five employees across four departments whose paycheck was at least 10% more than the previous pay period. IIAP worked with the Payroll group within Budget & Finance and the HRIS team within Human Resources to determine the reason for the increase and review 6 Independent Internal Audit Program Payroll Analytics Project any associated supporting documentation. IIAP verified that four increases were due to a promotion and corresponding pay raise, with the fifth increase due to a staffing reclassification exercise that was approved by city council. For the four promotions, the employee signed a new offer letter as presented by their respective supervisor or director. For the reclassification, no offer letter was required, with the pay increase occurring automatically in the next pay period after council approval. All corresponding changes in the system were made in accordance with the applicable effective dates. No exceptions were noted. F. Process Improvement Opportunities With the expiration and nonrenewal of our contract with the vendor that created our payroll analytics, we now have the opportunity to build some in-house. Preliminary discussions with our IT group show promise, and we may be able to utilize Artificial Intelligence to enhance depth and focus of analytics we develop. For instance, we should be able to analyze overtime hours by department, including whether certain individuals tend to receive more OT than others. Analytics can help us determine patterns, show possible favoritism, and perhaps build system prompts requiring certain approval levels once OT hours might exceed established limits. In addition, we can build other analytics related to spend (purchasing card and/or through accounts payable) by vendor or department to determine seasonality, promote contracted pricing and terms, and possibly increase competition in the marketplace for needed goods and services. The IIAP Manager will work with IT to determine the possible scope and timing of this project if senior management wishes to proceed. G. Project Scope & Methodology IIAP worked with one of our vendors to create various payroll analytics. Once built and functioning for sufficient time, samples were selected for testing of the output of each of the analytics. As this was a pilot project to determine future feasibility and not an official audit, this engagement was not conducted in accordance with specific audit standards. Instead, the objective was to determine if the analytics worked and if the city would like to proceed with additional development of future analytics that could reduce the need for full audits while still allowing for review of selected potential concerns. For this project, system activity was verified against source documentation (paper or electronic) showing the appropriate level of acknowledgement and/or approval. H. Data Reliability The primary data utilized for the work performed in this audit was obtained directly from the city’s HR/Financial system (MUNIS) and examination of staff personnel files. Reliability of MUNIS data is tested/verified each year as part of the annual financial audit by our contracted external audit firm.