CASE 2.3THE TROLLEY DODGERS

In I S90, the Brooklyn Trolley [)odgers professionalbaseballteam joined theN ati nal League.Overthefollowing years,theDodgerswould haveconsiderabledifficulty competingwith the other baseballteamsin the New York City area.Thoseteams,principal amongthem theNewYork Yankees,weremuchbetterfi-mincedandgenerallystockedwith playersof highercaliber.In 1958,afternearlysevendecadesof mostly frustration on and off the baseballfield, the Dodgersshockedthe sportsworld by moving to Los Angeles.Walter O’Malley, the flam-bovantownerof theDodgers,sawan opportunityto introduceprofessionalbase-ball to the rapidly growing population of the West Coast. More important,O’Malley sawan opportunityto makehis teammore profitable.As an induce-

cnt to the Dodgers,Los AngelesCounty purchaseda goat farm locatedinChavezRavine,anareatwo milesnorthwestof downtownLos Angeles,andgaveth~ propertyto O’Malley for thesiteof hisnewbaseballstadium.

Sincemoving to Los Angeles, the Dodgershavebeenthe envyof the baseballId: “In everythingfrom profit to stadiummaintenance.. . theDodgersarethe

prototypeof how a franchiseshouldberun.”1 During thedecadeof the1980s,theDodgerswerereportedlythe mostprofitablefranchisein baseball,with a pretaxprofit marginapproaching25 percentin manyyears.In late1997,PeterO’Malley,Walter O’Malley’s son and the Dodgers’ principal owner, announcedthat thefranchisewasbeing sold for $350million to the mediamogul, RupertMurdoch.A spokesmanfor MurdochcomplimentedtheO’Malley family for the longstand-ing successof the Dodgersorganization.“The O’Malleys haveset a gold stan-dardfor franchiseownership . . we will do all in our powerto live up to thatstandard.”2

PeterO’Malley, who still servesas the Dodgers’president,attributesthe suc-ce~ of the organizationto the expertshe hasretainedin all functionalareas:“1

1. RJ. Harris,“Forkball for Dodgers:CostsUp, GateOff,” The Wall Strt’et Journal, 31 August1990, 111, B4.

2. R. Newhari,“Dodger SaleHeadsfor Home,” LosAngelesTimes,5 September1997, Cl, C12.

164 SECTION TWO AUDITS OF HIGH-RISK ACCOUNTS AND INTERNAL CONTROL ISSUES

don’thave~obeanexpertontaxes,split-fingeredfastballs,or laborrelationswithour ushers.Thattalent is all available.”3EdwardCampos,a longtimeaccountantfor the Dodgers,wasseeminglya perfectexampleof oneof thoseexpertsin theDodgersorganization.Camposacceptedanentry-levelpositionwith theDodgersas a young man.By 1986,afteralmosttwo decadeswith theclub,hehadworkedhis way up the employmenthierarchyto becomethe operationspayroll chief.

After takingchargeof theDodgers’payroll department,Camposdesignedandimplementeda new payroll system,a systemthat reportedlyonly he fully un-derstood.In fact,Camposcontrolledthesystemsocompletelythathe personallyfilled out theweeklypayroll cardsfor eachof thefour hundredemployeesof theDodgers.Camposwasknownnot only for his work ethicbut also for his loyaltyto the club and its owners:“TheDodgerstrustedhim, andwhenhewason vaca-tion, he evencamebackanddid thepayroll.”4

Unfortunately,theDodgers’ trustin Camposwasmisplaced.Overa periodofseveralyears,Camposembezzledseveralhundredthousanddollars from theDodgersorganization.According tocourtrecords,CampospaddedtheDodgers’payroll by addingfictitious employeesto variousdepartmentsin the organiza-tion. In addition, Camposinflated the number of hours worked by severalemployeesandthensplit the resultingoverpaymentsfifty-fifty with thoseindivi-duals.The fraudulentschemewasfinally discoveredwhenCamposwasunableto work for a periodof timedueto illnessandhisresponsibilitieswereassumedtemporarilyby the Dodgers’controller.While completingthe payroll oneweek,the controllernoticedthat severalemployees,includingushers,securityguards,and ticket salespeople,were being paid unusualamounts.In somecases,em-ployeesearning$7 anhourwerereceivingweeklypaychecksapproaching$2,000.Following a criminal investigationandthe filing of chargesagainstCamposandhis cohorts,all theindividuals involved in the payroll fraudconfessed.

After pleadingguilty to embezzlementcharges,Camposwas sentencedtoeight years in state prison and agreedto make restitution of approximately$132,000to the Dodgers.Anotherof the conspiratorsalsoreceiveda prison sen-tence.Theremainingindividualsinvolved in thepayrollschememaderestitutionandwereplacedon probation.

QUESTIONS

1. What are the key objectives in the audit of a client’s payroll function?Commenton bothobjectivesrelatedto testsof controlsandthoserelatedto sub-stantiveaudit procedures.2. Whatinternal control weaknesseswere evidentin the Dodgers’ payroll sys-tem?3. Identify audit proceduresthat might haveled to thediscoveryof the fraudu-lent schememastermindedby Campos.

3. Harris,“Forkball for Dodgers,”Bi.

4. P. Feldman, “7 Accused of Embezzling $332,583 from Dodgers,”Los Angeles Times, 17September1986,Sec.2, 1, 6.