Case 3.1 The Trolley Dodgers

1. The key audit objectives are occurrence and existence, completeness, accuracy, posting &

summarization, presentation and disclosure, timing and classification. Because

completeness objectives means there is a need to check all of the amounts paid to

employees when the big amounts involved in the payroll, so, for a clients payroll

function, in this situation, completeness objectives should be considered. Auditors should

level the control risk on all payroll transaction cycle, which is auditor’s major objective

on performing tests of controls. In order to determine the nature, extent, and timing of the

year-end substantive tests auditors need to assess control risk for a transaction cycle to

get strong evidences. A payroll transaction cycle has two key accounts, which are

accrued payrolls and payroll expenses. Auditors mainly consider about these two

accounts if it violate the completeness objective for most expense and liability accounts.

Then, auditors use comprehensive analytical procedures when assess periodic payroll

expense to check its rationality. After checking the payroll expense and considering it

with the recent average employee pay raise, auditors will develop an expectation. If the

payroll expense provided by the clients out of the auditors expectation, then, a

substantive procedures and are tests needed to further check those differences.

2. There are several internal control weaknesses in the Dodgers payroll system: There are

not enough enforced vacations for key personnel showing in the case. In the payroll

systems, the scope of control of one person is started with the individuals design and

included the persons involvement in the operational detail of the system. A necessary test

may help to discover the fraudulent scheme. Auditors of the company did not enough

periodic testing on the payroll transaction cycle.

a. There are some examples of audit procedures that might led to the discovery of

the fraudulent scheme masterminded by Campos: Manual or computer-based tests

Employees who were paid for an excessive number of hours might be discovered

by manual or computer-based tests. Proper distribution of payroll checks For

selected department, a proper distribution of payroll checks may lead in

unclaimed checks which help to discover fraud of Campos. Analytical procedures

Several analytical procedures to check the Dodgers periodic payroll expense

might have disclosed the payroll expenditures of the department were not

conformity.