The Trolley Dodgers

In 1890, the Brooklyn Trolley Dodgers professionals’ baseball team joined the National League. Over the following years, the Dodgers would have considerable difficulty competing with the other baseball themes in the New York City area. Those teams, principal among them the New York Yankees, were much better financed and generally stocked with players of higher caliber. In 1958, after nearly seven decades of mostly frustration on and off the baseball field, the Dodgers shocked the sports world by moving to Los Angeles. Walter O’Malley, the flamboyant owner of the Dodgers, saw an opportunity to introduce professional baseball to the rapidly growing population of the West Coast. More important, O’Malley saw an opportunity to make his team more profitable. As an in document to the Dodgers, Los Angeles Country purchased a goat farm located in Chavez Ravine, an area two miles northwest of downtown Los Angeles, and gave the property to O’Malley for the site of his new baseball stadium. Since moving to Los Angeles, the Dodgers have been the envy of the baseball world: â€Å"In everything from profit to stadium maintenance†¦the Dodgers are the prototype of how a franchise should be run. †? During the 1980s and 1990s, the Dodgers reigned as the most profitable franchise in baseball with a pretax profit margin approaching 25 percent in many years. In late 1997, Peter O’Malley, Walter O’Malley’s son and the Dodgers principal owner, sold the franchise for $350 million to media mogul Rupert Murdoch. A spokesman for Murdoch complimented the O’Malley family for the longstanding success of the Dodgers organization. â€Å"The O’Malley’s have set a gold standard for franchise ownership†. ? During an interview before he sold the Dodgers, was seemingly a perfect example of one of those experts he had retained in all functional areas: â€Å"I don’t have to be an expert on taxes, split-fingered fastballs, or labor relations with our ushers. That talent is available. †? Edward Campos, a longtime accountant for the Dodgers, was seemingly a perfect example of one of those experts in the organization. Campos accepted an entry-level position with the Dodgers as a young man. By 1986, after almost two decades with the club, he had worked his way up the employment hierarchy to become the operations payroll chief. After taking charge of the Dodgers’ payroll department, Campos designed and implemented a new payroll system, a system that reportedly only he fully understood. In fact, Campos controlled the system so completely that he personally filled out the weekly payroll cards for each of the four hundred employees of the Dodgers. Campos was known not only for his work ethic but also for his loyalty to the club and its owners: â€Å"The Dodgers trusted him, and when he was on vacation, he even came back and did the payroll. †? Unfortunately, the Dodgers’ trust in Campos was misplaced. Over a period of several years, Campos embezzled several hundred thousand dollars from his employer. According to court records, Campos padded the Dodgers’ payroll by adding fictitious employees to various departments in the organizations. In addition, Campos routinely inflated the number of hours worked by several employees and then split the resulting overpayments fifty-fifty with those individuals. The fraudulent scheme came unraveled when appendicitis struck down Campos, forcing the Dodgers’ controller to temporarily assume his responsibilities. While completing the payroll one week, the controller noticed that several employees, including ushers, security guards, and ticket salespeople, were being paid unusually large amounts. In some cases, employees earning $7 an hour received weekly paychecks approaching $2,000. Following a criminal investigation and the filing of charges against Campos and his cohorts, all the individuals involved in the payroll fraud confessed. A stale court sentenced Campos to eight years in prison and required him to make restitution of approximately $132,000 to the Dodgers. Another of the conspirators also received a prison sentence. The remaining individuals involved in the payroll scheme made restitution and were placed on probation. QUESTIONS AND ANSWERS 1. Identify the key audit objectives for a client’s payroll function. Comment on both objectives related to tests of controls and those related to substantive audit procedures. Ans: The key audit objectives for a client’s payroll function are occurrence, completeness, accuracy, pasting and summarization, classification and timing. On the occurrence objective the related test of control could be examining the time cards, personnel files, reviewing organization chart to see if the payroll payments are for exiting work and for existing employee and the substantive test for the occurrence objective is to see if the right amount of payroll is paid to the right employee and were recorded properly. On the completeness objective the test of control could be to see if the existing payroll were recorded and the substantive test is to compare the book and the payroll bank statement and look for the unmatched amount. For the accuracy objective, the test of control is to examine if the right hours and rate are recorded, tax withholding is correct while the substantive test is to test for exact amount by recalculating gross pay and net pay, comparing pay rate with the industry also. For posting and summarization objective, the test of control could be comparing the master files total with general ledgers total and while the substantive test is by footing the payroll journal and tracing postings to the journal ledger and the payroll master file. The test of control for the classification objective is to review charts of accounts while the substantive test is to review the time cards and job ticket. Lastly, for the timing objective, the test of control is to examine procedures and observe if recording is taking place while the substantive test is to compare date on checks. . What internal control weaknesses were evident in the Dodgers’ payroll system? Ans: The internal control weaknesses in the Dodger’s payroll system is that Campos, who is happen to be the operations payroll chief, is the one who designed and also implemented a new payroll system that only him that could fully understand. Also other weaknesses is that there is no independent check a nd performance, there is also no separation of duties, and Dodgers work environment would be a weakness because Campos and others have low work ethic. 3. Identify audit procedures that might have led to the discovery of the fraudulent scheme masterminded by Campos. Ans: Audit procedures that might discover the fraud is by understanding Dodger’s payroll chart because auditors would see if there are no independent check and performance and no separation of duties. Another thing is that to interview employees in the payroll department. Test for nonexistent employee, reconciling the total hours paid in payroll records with that in an independent record of the hours worked and observing employee time in.