Internal control weaknesses in the Dodger’s payroll system
An entity’s board of directors together with the management and other personnel affect the internal control process. The process is designed with an aim of providing assurance concerning the achievement of the objectives and the reliability of financial reports, efficiency, effectiveness and compliance with the set guidelines and laws.
The Dodgers’ payroll System has some weaknesses. The major weakness is the internal control design. The payroll chief Mr. Campos solely designed the internal control (Knapp 289). He designed and implemented the new payroll system that can only be understood by him. The main purpose of internal control is to detect any possible misstatement in the financial reports. However, the fact that no one else can understand the system means that it is easy for Campos to commit fraud.
Another weakness is that there are no independent checks and performances. Campos was in full control of the system to an extent that he made the periodic payroll cards entries for all employees personally. He can record anything he wants and there is evidence to prove the reliability of the record. Again, separation of duties was not done. When Campos went on vacation, he had to come back and do the payroll. The separation of assets custody from accounting is not done. Anyone with the custody of an asset accounts for it thus increasing the risk of such a person disposing off the asset for individual gains and then cover-up by adjusting the records (Knapp 290). In this case, Campos was responsible for every task.
Another weakness in the internal control is that there is collusion between the employees and the management. There is some element of low work ethics for Campos and his followers. Campos has a tendency of inflating the employees working hours and then splitting the payment fifty-fifty with other individuals. In addition, Campos has embezzled a large sum of money from his employer.
Procedures of Audit that might have detected the fraudulent scheme
An audit process is a comprehensive instruction for the gathering of audit evidence obtained during auditing. There are procedures that an auditor could have followed to detect the fraudulent scheme. The main procedure was for the auditor to follow the flow chart clearly. The auditor must clearly understand the flow chart to help trace what is really going on in the payroll system. With this, the auditor would be able to notice that independent checks are not done and the payroll department does not have duties segregation.
Again, the auditor can interview the employees in the payroll department. The auditor is allowed to ask any question they think fit like how many hours the employees work. such questions will help the auditor understand the payroll system better. The auditor can also test for nonexistent employees. This will help in determining whether all the transactions recorded by Campos really exist or are non-fictitious. Besides this, the auditor can ask for surprise payroll payoff. This will ensure the payroll department has no time to edit the entries in the system.
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