The Trolley Dodgers

Case 3.1: The Trolley Dodgers

Summary:

The Brooklyn Trolley Dodgers is a professional baseball team originally from the New York

City area. Due to lack of players of high caliber and finance, the team moved to Los Angeles seven

decades later. Walter O'Malley, owner of the Dodgers, saw an opportunity to make the team more

profitable. The team found success during the 1980s and 1990s, becoming the most profitable

franchise in baseball. In 1997, the franchise was sold to Rupert Murdoch, a media mogul. When

Walter O'Malley son, Peter, was managing the Dodgers, he employed Edward Campos as the

operations payroll chief. Campos implemented a new payroll system that only he fully understood.

He was trusted by everyone in the franchise, but in reality Campos had been embezzling from his

employer by adding fictitious employees to the system, inflating the hours worked by employees

and splitting the overpayments with those individuals. The scheme was only discovered when

Campos's position was temporarily replaced by the controller when Campos was ill. Campos was

sentenced eight years in prison and owed restitution of $132,000 to the Dodgers, and cohorts were

also put in prison placed on probation.

Professional Literature:

Auditing Standard No. 5 and Sarbanes-Oxley says that independent auditors need to issue

an opinion on the management's assessment of the company's internal control. In this case, there

is a material weakness in the internal controls due to the lack of segregation of duties. Campos is in

charge of the whole payroll system and controls it entirely.

Questions:

1. The key audit objectives for a client's payroll function is to evaluate if the payroll account

balances are fairly stated in accordance with GAAP. Auditors would have to understand the

internal controls of of the company's payroll system and design and perform tests of controls and

transactions. The objectives related to tests of controls and substantive audit procedures include

obtaining evidence about the effectiveness