CASE 3.1
THE TROLLEY DODGERS
Synopsis
In this brief case, a longtime and trusted employee of the Los Angeles Dodgers engaged in a
large scale payroll fraud to embezzle funds from the organization. Over a period of several years,
this fraudulent scheme cost the owners of the Dodgers several hundred thousand dollars.
Contributing to the success of the fraud was the laxity of the Dodgers’ internal controls. Eventually,
the fraud was exposed when the individual who masterminded the scheme was hospitalized on an
emergency basis and thus unable to “cover his tracks” for a period of time.
The Trolley Dodgers—Key Facts
1. The top executives of the Dodgers organization placed a great deal of trust in their subordinates.
3. The Dodgers’ payroll system was not only supervised by Campos but had also been designed by
him.
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Instructional Objectives
1. To identify key internal control issues for an organization’s payroll function.
Suggestions for Use
This case deals with an organization’s payroll function and thus would articulate well with
classroom coverage of the payroll transaction cycle. Alternatively, the case could be used to
introduce students to key internal control concepts including: the need for management to resist
least reliable person within it).
Suggested Solutions to Case Questions
1. An auditor’s principal objective in performing tests of controls on a payroll transaction cycle, as
with any transaction cycle, is to assess the level of control risk latent within that cycle. An auditor
assesses control risk for a transaction cycle to obtain the evidence needed to determine the nature,
extent, and timing of the year-end substantive tests to be applied to the account balances produced by
2. The following internal control weaknesses were apparent in the Dodgers’ payroll system:
a. the extent of control that one person had over the payroll system, which began with that
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3. Listed next are examples of audit tests that might have led to the discovery of Campos’
embezzlement scheme.
a. A surprise distribution of payroll checks for selected departments might have resulted in
unclaimed checks and thus discovery of Campos’ fraud.