Trolley Dodgers Case

Executive Summary The Trolley dodgers was exposed that it had infixed attend problems existed. The other hand, instal that employees embezzlement. The first dampen of this report severalise and explain the characteristics of employee fraud indicated in foxs case. much(prenominal) as culprit must gains the trust or confidence of the soul or company being defrauded. etc And then, the second part is explain the informal reign oer weaknesses and understanding internal take care objectives . The third part based on the understanding of the Committee of Sponsoring Organisations internal withstand.Final part is recommendation for Dodgers internal require problems. Table of Contents cosmos3 Characteristics of the employee fraud in Trolley Dodgers case3 The internal program line weaknesses in the Dodgers breaksheet body4 The critical evaluation of the internal construe problems in the Dodgers payroll department department corpse5 Recommendation for Dodgers internal con trol problems7 book of facts List9 Introduction In this report, I pass on be divided into four parts. The first part will coating Identify and explain the characteristics of employee fraud .The second part is explain the internal control weaknesses that were evident in the Dodger payroll system . the internal control weaknesses totallyow no self-reliant check and Dodgers dont nurse separation of duties, etc. The third part is to understanding the Committee of Sponsoring Organisations internal control frame formulate to evaluate internal control problems. The COSOs internal control framework arrive five interrelated components. the five components includes avow environment ,Control activities, Risk assessment , Information and intercourse and Monitoring.The final part is recommendation for Dodgers internal control problems. Characteristics of the employee fraud in Trolley Dodgers case Employee fraud is an employee within the company to improperly deceptive means to obtain the companys money or other property. by means of understand to Romney and Steinbart for the employee fraud has a number of important characteristics. However, the analysis and interpretation in this case related to employee fraud Characteristics. One basic characteristics of employee fraud is perpetrator must gains the trust or confidence of the person or company being defrauded.In the case mentioned Edward Campos is operations payroll Chief. He is longtime running(a) for the Dodgers . He was known non only for his work ethic only when also for his loyalty to the club . However, His boss think Campos was on vacation ,He will came back to company and did the payroll. Dodgers Trusted him. The facts aim proved that perpetrators has gained the trust of the company , His behavior is consistent with employee fraud of characteristics . Many employee fraud cases are the characteristics of perpetrators and employers to establish a good relationship of trust.Other case about Bess is ca shier supervisor at the campus student health services(SHS)? she is indisputable employee? she was able to pluck this fraud undetected for nearly 13 years? why? But the answer is simply Beca hold dont anyone suspected the SHS cashier supervisor because she was a trusted, well-liked employee. Fraud look for finds that most members of the general public fulfill the profile of the typical fraud perpetrator(Peterson and Gibson 2003). But Dodgers case and Bess case similar, so to meet this characteristics of employee fraud.The fraud perpetrators use false or misleading training to obtain asset or money is the fundamental elements of employee fraud. This element is required no use other knockdown-dragout offenders, Other employee fraud is they the hide their tracks by falsifying testifys or other information (Romney and Steinbart 2009). Because he false profits income of workers, He registered about $ 2000 hebdomadary wage employees. However, the real wages of workers earning $ 7 per hour. His salary much than 55% false.On the other hand, He all told control lead the payroll system for filling out the weekly payroll cards for the employees of the Dodgers. Because, He designed and implemented to payroll and only himself understand full payroll system. Other case admitted to manipulating work samples, falsifying translates to cover up its poor performance as a Medicare contractor(Healthcare Financial Management 1998) . Demonst swan through their privileged position to falsifying records is general public fit the profile of the characteristics fraud perpetratorThe internal control weaknesses in the Dodgers payroll system Internal control refers the process implement by the corporate bill of fare of directors, arrangers and other staff, and provide reasonable assurance . The purpose of internal control is to ensure the dependableness and accuracy of pecuniary reporting, efficiency of operations, and compliance with laws and regulations. The internal contr ol weakness in the Dodgers payroll system include 1. The Trolley Dodgers dont shoot independent check and performance .Because, Campos controlled the system so completely that he ad hominemly filled out the weekly payroll cards for individually of the 400 employees of the Dodgers. 2. Trolley Dodgers should have must vacation for senior managers. Because, A management position working in a long time, then he will be more familiar with the internal control vulnerabilities, the realizable implementation corruption. 3. The Dodgers dont have separation of duties, Campos is operations payroll chief. He designed and implemented of a new payroll system,.However, this is only himself understanding of all system operations. He was the trusted employee who got trusted too much, However,that Campos took advantage of his authorization. He came back during vacation to do the payroll. On the other hand, Camps routinely inflated the number of hours worked by several employees and then split th e resulting overpayments fifty-fifty with those individuals. These employees pay $ 7 per hour, but these employees weekly wage approaching $2000. He did not ensure the integrity of assets and reliability of financial reporting.This information is also proved that the internal control failed to arrived goal of the segregation of duties. Enterprises to integrity and establish the internal organization, it is the economic activity of firms for planning, directing and autocratic the organizational basis, the core problem is a reasonable segregation of duties. Under normal circumstances, Dealing with each production line or the economy in the self-coloured process a few important aspects, Companies need to be up to the two departments or two or more departments, two or more staff for the purpose of mutual control.The critical evaluation of the internal control problems in the Dodgers payroll system What is internal control ? Different people have different interpretations. General p eople to understand the internal control for the organization to reduce work of the decision-making errors and defects in the implementation of the control, These controls whitethorn be internal oversight, it may be management manuals, rules and regulations. These theories are not wrong, but not comprehensive. In accordance with the internal control theory, these are only part of the internal control, but not all.Internal control theory suggests that internal control is a systematic framework, It is built on the basis of risk management. The five elements include Control environment ,Control activities, Risk assessment , Information and communication and Monitoring . (Romney and Steinbart 2009). We call this architecture as Committee of Sponsoring Organisations (COSO) internal control framework. The internal control merged framework has been widely adopted as the principal way to evaluate internal controls. Will through the five elements to evaluate the internal control problems wi th the Dodgers payroll system.The control environment is the establishment, Strengthen or weaken the specific policies, procedures and their impact on the efficiency of the various factors, mainly refers to the major factor. Control environment have a direct impact on the implementation of internal control and execution of chore objectives and related to the overall strategic objectives. Control environment, including the values of employees, effect competence, managements business model, the allocation of veraciouss and responsibilities. In this case have found problem is Trolley Dodgers no reasonable structure and clear division of responsibility approach.Because, Campos is payroll chief. However, Campos completely controlled the payroll system for filling out the weekly payroll cards for the employees of the Dodgers. in that locationfore, the formation of a single department, resulting in no mutual constraints of the internal control system. The control activates is Instruc tion is to help executive management policies and procedures. It throughout the organization, at all directs and functions, including a variety of activities such as approvals, authorizations, confirmed that adjustment, business performance evaluation, asset protection and separation of duties.The Trolley Dodgers dont have separation of duties, However,that Campos took advantage of his authorization. He came back during vacation to do the payroll. Risk assessment is to identify and analyze the process of achieving goals related risks, which with the economy, industry, regulatory and operating conditions are constantly changing, the need to establish a mechanism to identify and deal with the corresponding risks. Dodgers case dischargenot be any problem in this regard. Information and communication is surrounding the control activities are information and communication.From internal and external information must be a certain format and time interval to confirm the capture and transf er to ensure the companys employees to perform their respective duties. Effective communication is a broad communication, including the enterprise from top to bottom, bottom-up and horizontal communication. Effective communication includes the relevant information with parties outside the enterprise effective communication and exchange, such as customers, suppliers, administration and shareholders.Dodgers does not have very good communication, so senior managers do not understand the financial statements of a problem. Monitoring is the wide business process must be monitored. Through the normal management and control activities and staff activities in the course of his duties to monitor, to evaluate the quality of operation of the system. valuation of different steps depending on the scope and implementation of risk assessment and monitoring program effectiveness. By understanding the Dodgers case can determine a great part of this monitoring problem.Dodgers not have normal compan y monitoring department. Lead to administrator cant find employee fraud. Recommendation for Dodgers internal control problems Based on understanding of the COSO internal control framework and the Dodgers facts, I recommend Dodgers to strengthen its internal control system. Internal controls perform terce important point, segregation of duties , strengthen the monitoring and Must ensure that the accounting documents and accounting records of the completeness and correctness.All of those three are suitable for Dodgers situation. Three proposals are as follows 1. When these functions are combined in one individual, it is possible to the misappropriation asset and conceal the crime by manipulating the related records ? such as overpayment 55% with those employee. So, When the economic activity of firms for planning, directing and controlling the organizational basis, the core problem is a reasonable segregation of duties.Under normal circumstances, dealing with the whole process of bus iness of each economy, Must two department or more than two departments, two or more two employees take responsibility, its purpose is to restrict each other. Therefore, Separating the incompatible functions of cash arranging and cash custody, independent check of cash received and cash deposited, The mandatory vacations with other personnel performing duties during the employees absence. 2. Dodgers need to strengthen monitoring. However, it is necessary to establish an internal audit department.Internal audit is to strengthen the internal control system is a basic measure. Internal audit responsibilities include the critique of accounts, It also includes inspection, evaluation of internal control system is perfect. Through the companys financial report of audit. The audit report submitted to the Board of Directors. Thus ensuring the companys internal control system more perfect. 3. Must ensure that the accounting documents and accounting records of the completeness and correctnes s. Because in this case found that the perpetrators falsified accounting documents.Conclusion Through the analysis of the Trolley Dodgers case, we found internal control have weakness It dont have separation of duties and dont have independent check and performance. Also, Dodgers had internal control issues according to the Committee of Sponsoring Organisations (COSO) internal control framework . Analysis of the case of internal control, and finally gives three suggestions. Recommendations include segregation of duties , strengthen the monitoring and Must ensure that the accounting documents and accounting records of the completeness and correctness.Reference List Book references Romney, MB & Steinbart, PJ 2009, Accounting information systems, 11th edn, Pearson Prentice Hall, Upper Saddle River. Academic Journal articles references Bonita K Peterson and Thomas H Gibson. savant health services a case of employee fraud In Journal of Accounting Education 2003 21(1)61-73 HFM (Healthcar e Financial Management) Illinois Medicare carrier guilty of fraud, agrees to a $144 cardinal settlement. September 98, Vol. 52 Issue 9, p10, 1/4p LIN LINTrolley Dodgers CaseCASE STUDY THE TROLLEY DODGERS 1. Identify the key audit objectives for a leaf nodes payroll function. Comment on both objectives related to tests of control and those related to tests of control s and those related to substantive audit procedure. The key audit objectives for clients payroll function in this Trolley Dodgers Case are i. Occurrence ii. Completeness iii. Accuracy iv. Posting & Summarization v. Classification vi. Timing i. Key examine Objective Occurrence Dodgers must recorded payroll payments for existing employees only and should have separation of duties for each t affect. mental test of Control Examine internal control to recognise if the payroll payments are for exiting work and existing employees. The test could be examining all the workers time cards, personnel files and review organiza tion chart. They also can talk over with employees and observe duties being performed. The tests would examine printouts of proceedings rejected by the computer as having nonexistent employee numbers. Substantive Test of movements The test to see if the right dollar amount in the payrolls were recorded and paid properly.They also test to review large dollar amount in the diary entries, general volume and payroll earnings. Examine call off checks for proper endorsement could be compare with a personnel record. ii. Key Audit Objective Completeness Dodgers must record all existent payroll deeds. Test of Control The test is to see if the existing payrolls are recorded. If employees do not get any payment, so they can instantly report to the employer. They also test to review the renumbered payroll check to find the missing one. Substantive Test of Transaction They can compare the book and payroll bank statement.Therefore, they will prove the bank reconciliation and can look for unmatched dollars amount. iii. Key Audit Objective Accuracy Dodgers recorded payroll transactions are for the amount of time actually worked and at the proper pay rates accuracy. Test of Control The test is to see if the right hours and right rate are recorded and tax withholding is correct. Batch totals are compared with computer summary reports. Auditors could examine authorization in payroll records and personnel files. Substantive Tests of Transaction To test for exact dollar amount, hearers could recalculate gross and net pay.They also can compare pay rate with the industry, review cancel check withholdings by referring to tax tables and authorization forms in personnel file. iv. Key Audit Objective Posting and Summarization. Dodgers recorded payroll transaction properly included in the overlook file also properly summarized. Test of Control When payroll master file totals are compared with general ledger totals, listeners should examine initialed summary total reports indi cating that equation has been made. They also must examine indication of internal verification.Substantive Test of Transaction Test clerical accuracy by footing the payroll daybook and tracing postings to the journal ledger and the payroll master files. v. Key Audit Objective Classification Dodgers classify all payroll transaction properly and efficiently. Test of Control They should review charts of accounts. If the account classifications are internally verified, then they can examine indication of internal verification. Substantive Test of Transaction They can review time cards and job ticket, and trace through to labor distribution.They should compare classification with chart of accounts or procedures manual. vi. Key Audit Objective Timing Dodger must record all payroll transaction immediately, on the correct date and right amount. Test of Control Auditors should examine procedures manual and observe when recording takes place and examine indication of internal verification . Substantive Test of Transaction The attendee compare date on checks with date in the payroll journal and compare date on check with date the check cleared the bank. 2. What internal control weaknesses were evident in the Dodgers payroll system?Internal control is a process, affected by an entitys board of director, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in reliability of financial reporting, effectiveness and efficiency of operations and compliance with laws and regulations. Internal control weakness in the Dodgers Payroll System are from the design of internal control, no independent check and performance, no separation of duties, the weakness of work environment, and required vacation for senior manager. . Design of internal control Campos, the operations payroll chief have designed the internal control by himself and implemented a new payroll system that only can be fully understand by him. As we know, t he purpose of design the internal control is to prevent or detect material misstatement in the financial statement. Due to this case, Campos can easily commit fraud because there are no other people that can understand the design of the internal control. ii. No independent check and performanceCampos controlled the system so completely that he personally filled out the weekly payroll card for each of the four hundred employees. He can record any fraudulent statement because there is no evidence that shows whether the record is reliable or not. iii. No separation of duties Campos took advantage of his authorization because he was the trusted employee who got trusted too much from Dodges. When he was on vacation, he came back and did the payroll. There is no separation of the custody of assets from accounting. A person who has temporary or permanent custody of an asset should not account for that asset.This is because by allowing one person to perform both function increases the risk of that person disposing of the asset for personal gain and adjusting the records to cover up the theft. As we can see in this case, Campos was the only one who responsible for every task. iv. Weakness of the work environment There is collusion between employees and management. This showed that both Campos and his cohort have low work ethic. Campos routinely inflated the number of hours worked by several employees and then split the resulting over payment fifty-fifty with those individuals.In addition to this, Campos also embezzle several hundred thousand dollars from his employer. 3. Identify audit procedure that might have led to the discovery of the fraudulent scheme mastermind by Campos. Audit procedure is the detailed instruction for the collection of a type of audit evidence that is to be obtained at some time during the audit. i. The auditor must understand clearly the flow chart Auditor should go through the Dodgers payroll flow chart. The auditor must understand clearly the flow chart. From that, the auditor can trace how the payroll system is going on actually.Then, the auditor would see there are no independent checks that have been done by Campos. The payroll department also does not have segregation of duties and all that work is done by Campos only. ii. The auditor can interview employees in payroll department. The auditor can interview employees in payroll department. The auditor can ask whatever question that they think its very important and need to know. Like, how much Campos pay for daily operations works for every level of staff, and how Campos manage the time card. The auditor will know more detailed about the payroll process. ii. The auditor test for nonexistent employees For make sure the all transaction that have recorded by Campos and payroll department is really exist and they make payment to the non fictitious employees, the auditor compare names on cancelled checks with the time card have created. The auditor can scan the endorsemen t on cancelled checks. Furthermore, auditor also can make comparison on personal files of employees with time card that created. Other than that, the auditor can run test of control by spoted transaction in the payroll with Human Resources department.The auditor can select a week check transaction and examine the first fifty checks, select the fifty checks with the largest amounts, select the checks randomly or select those checks the auditor thinks are most likely to be in error or a combination of this method could be used. Besides that, the auditor crave surprise payroll payoff from payroll department. When the auditor requests for payroll payoff suddenly, for sure the payroll department do not chance and do not have enough time to make correction on their system. So, Auditor will see the real transaction that have make by that department. Finally, the uditor can trace the misstatement, fraud and error easily. iv. The auditor tests for fraudulent hours Other than that, the audi tor also can reconcile the total hours paid in the payroll records with and independent record of hours worked. Auditor would see, if payroll record transaction is true based on the time card or not. The auditor can trace if the record keeping employees have intention to do that fraud. v. The auditor compare pay rates with the same positions in other baseball team in the league. The auditor also should understand business nature and make comparison with another similar business nature.From that result, the auditor will know how much is exactly pay rates usually paid to the professional baseball. After done that activity, the auditor is able to identify the pay rates that put by Campos to the every level worker is it relevance or not. vi. The auditor examines the large payroll checks. Last steps, that auditor use to discover the fraud is by examine the largest payroll checks out. The auditor reconciles the checks between the payroll record, time card, and all relevance data. Auditor would see which one fictitious transaction that has been made by Campos.