First Keystone Bank
A Japanese bank introduced the concept of around-the-clock access to cash
in the 1960s when it installed the world’s first cash-dispensing machine. In
1968, the first networked ATM appeared in Dallas, Texas.
generations later, there are more than two million “cashpoints,”
“bancomats,” and “holes-in-the-wall” worldwide, including one in
Not surprisingly, ATMs have been a magnet for thieves since their
inception. In 2009, an international gang of racketeers used a large stash of
counterfeit ATM cards to steal $9 million from hundreds of ATMs scattered
around the globe in a well-planned and coordinated 30-minute crime
spree. Several hightech thieves have hacked into the computer networks of
banks and modified their ATM software. One such miscreant
reprogrammed a network of ATMs to change the denomination of bills
recognized by the brainless machines—the ATMs treated $20 bills as if
they were $5 bills. High-powered video cameras and miniature electronic
devices attached to ATMs have been used to steal personal identification
numbers (PINs) from a countless number of unsuspecting bank customers.
A variety of low-tech schemes have also been used to rip off banks and
their customers via ATMs, including forced withdrawals and postwithdrawal armed robberies. “Ram-raiding” involves using heavy-duty
equipment to rip an ATM from its shorings. The ram-raiders then haul the
ATM to a remote location and blast it open with explosives. The most
common and lowest-tech type of ATM pilfering involves the aptly named
tactic of “shoulder-surfing.”
Many banks have suffered losses from their ATM operations due to
embezzlement schemes perpetrated by employees. One such bank was the
Swarthmore, Pennsylvania, branch of First Keystone Bank. Swarthmore, a
quiet suburb of Philadelphia, is best known for being home to one of the
nation’s most prestigious liberal arts colleges. In 2015, Forbes Magazine
ranked Swarthmore College as the sixth best institution of higher learning
in the United States—two slots below Yale, but two slots higher than
In January 2010, three tellers of First Keystone’s Swarthmore branch were
arrested and charged with stealing more than $100,000 from its ATM over
the previous two years. The alleged ringleader was Jean Moronese, who
had worked at the branch since 2002 and served as its head teller since
2006. According to media reports, Moronese told law enforcement
authorities that she initially began taking money from the branch’s ATM in
2008 to pay her credit card bills, rent, and day care expenses.
No doubt emboldened by the ease with which she could steal the money,
Moronese reportedly began taking cash from the ATM “just to spend”
because she “got greedy.”
Prior to taking a vacation in the fall of 2008, a
tearful Moronese approached one of her subordinates and fellow tellers,
Kelly Barksdale, and confessed that she had been stealing from the ATM.
Moronese “begged” Barksdale to help her conceal her thefts “because she
didn’t want her children to see her go to jail.”
Barksdale was apparently
persuaded by Moronese’s tearful plea and agreed to help her cover up the
In fact, the cover-up was easily accomplished. According to the local police,
Moronese and Barksdale simply changed the ledger control sheets that
were supposed to report the amount of cash stored in the ATM and in the
locked vault within the ATM. First Keystone’s internal control procedures
mandated that two employees be involved in resupplying the ATM and its
locked vault and in maintaining the ATM ledger control sheets. However,
either Moronese or Barksdale completed those tasks by themselves.
In early 2009, a third teller, Tyneesha Richardson, overheard Moronese
and Barksdale discussing the embezzlement scheme. Richardson then
reportedly asked Moronese for money to pay off her car loan. Moronese
agreed to give Richardson the money and told her that she shouldn’t worry
because “the bank had a lot of money and they would never miss it.”
telling Barksdale that she had given money to Richardson, Moronese told
Barksdale that if she ever needed any money “to let her know.”
thereafter, Barksdale allegedly asked Moronese for $600 to pay her rent.
An internal audit eventually uncovered the embezzlement scheme at First
Keystone’s Swarthmore branch. That internal audit revealed that $40,590
was missing from the branch’s ATM, while another $60,000 was missing
from the locked vault within the ATM’s interior.
While being interrogated by law enforcement authorities, Barksdale
reportedly confessed that she and her colleagues had also stolen money
from the local municipality. City employees periodically dropped off at the
First Keystone branch large bags of coins collected from Swarthmore’s
parking meters. Tellers at the branch were supposed to feed the coins into
a coin-counting machine and then deposit the receipts printed by the
machine into the city’s parking account. According to Barksdale, she and
her two fellow conspirators diverted money from Swarthmore’s parking
funds and split it among themselves. The police estimated that the three
tellers stole approximately $24,000 of the parking funds.
In January 2010, when the three tellers were arrested, they did not have far
to go since the Swarthmore police station was across the street from the
First Keystone branch where they worked. In commenting on the case, the
local district attorney observed that Barksdale and Richardson had a
choice to make when they learned of Moronese’s embezzlement scheme
and that each had made the wrong choice. “So, the lesson is you can either
be a witness or you can be a defendant. These two chose to be defendants.”
The district attorney also commented on the branch’s failure to require
employees to comply with internal control procedures. “The case is yet
another example of the importance of not only implementing internal
accounting safeguards, but ensuring that those safeguards are being
followed by all employees at all levels of the business.”
1. Prepare a list of internal control procedures that banks and other financial institutions
have implemented, or should implement, for their ATM operations.
2. What general conditions or factors influence the audit approach or strategy applied to a
bank client’s ATM operations by its independent auditors?
3. Identify specific audit procedures that may be applied to ATM operations. Which, if any, of
these procedures might have resulted in the discovery of the embezzlement scheme at First
Keystone’s Swarthmore branch? Explain.
The Trolley Dodgers
In 1890, the Brooklyn Trolley Dodgers professional baseball team joined
the National League. Over the following years, the Dodgers would have
considerable difficulty competing with the other baseball teams in the New
York City area. Those teams, principal among them the New York Yankees,
were much better financed and generally stocked with players of higher
After nearly seven decades of mostly frustration on and off the baseball
field, the Dodgers shocked the sports world by moving to Los Angeles in
1958. Walter O’Malley, the flamboyant owner of the Dodgers, saw an
opportunity to introduce professional baseball to the rapidly growing
population of the West Coast. More important, O’Malley saw an
opportunity to make his team more profitable. As an inducement to the
Dodgers, Los Angeles County purchased a goat farm located in Chavez
Ravine, an area two miles northwest of downtown Los Angeles, and gave
the property to O’Malley for the site of his new baseball stadium.
Since moving to Los Angeles, the Dodgers have been the envy of the
baseball world: “In everything from profit to stadium maintenance … the
Dodgers are the prototype of how a franchise should be run.”
1980s and 1990s, the Dodgers reigned as the most profitable franchise in
baseball with a pretax profit margin approaching 25 percent in many
years. In late 1997, Peter O’Malley, Walter O’Malley’s son and the Dodgers’
principal owner, sold the franchise for $350 million to media mogul Rupert
Murdoch. A spokes-man for Murdoch complimented the O’Malley family
for the long-standing success of the Dodgers organization: “The O’Malleys
have set a gold standard for franchise ownership.”
During an interview before he sold the Dodgers, Peter O’Malley attributed
the success of his organization to the experts he had retained in all
functional areas: “I don’t have to be an expert on taxes, split-fingered
fastballs, or labor relations with our ushers. That talent is all available.”
Edward Campos, a longtime accountant for the Dodgers, was a seemingly
perfect example of one of those experts in the Dodgers organization.
Campos accepted an entry-level position with the Dodgers as a young man.
By 1986, after almost two decades with the club, he had worked his way up
the employment hierarchy to become the operations payroll chief.
After taking charge of the Dodgers’ payroll department, Campos designed
and implemented a new payroll system, a system that only he fully
understood. In fact, Campos controlled the system so completely that he
personally filled out the weekly payroll cards for each of the Dodgers’ 400
employees. Campos was known not only for his work ethic but also for his
loyalty to the club and its owners: “The Dodgers trusted him, and when he
was on vacation, he even came back and did the payroll.”
Unfortunately, the Dodgers’ trust in Campos was misplaced. Over a period
of several years, Campos embezzled several hundred thousand dollars
from his employer. According to court records, Campos padded the
Dodgers’ payroll by adding fictitious employees to various departments in
the organization. In addition, Campos routinely inflated the number of
hours worked by several employees and then split the resulting
overpayments 50-50 with those individuals.
The fraudulent scheme came unraveled when appendicitis struck down
Campos, forcing the Dodgers’ controller to temporarily assume his
responsibilities. While completing the payroll one week, the controller
noticed that several employees, including ushers, security guards, and
ticket salespeople, were being paid unusually large amounts. In some
cases, employees earning $7 an hour received weekly paychecks
approaching $2,000. Following a criminal investigation and the filing of
charges against Campos and his cohorts, all the individuals involved in the
payroll fraud confessed.
A state court sentenced Campos to eight years in prison and required him
to make restitution of approximately $132,000 to the Dodgers. Another of
the conspirators also received a prison sentence. The remaining
individuals involved in the payroll scheme made restitution and were
placed on probation.
The San Francisco Giants are easily the most heated, if not hated, rival of the Dodgers. In
March 2012, a federal judge sentenced the Giants’ former payroll manager to 21 months in
prison after she pleaded guilty to embezzling $2.2 million from the Giants organization. An
attorney for the Giants testified that the payroll manager “wreaked havoc” on the Giants’
players, executives, and employees. The attorney said that the embezzlement “included
more than 40 separate illegal transactions, including changing payroll records and stealing
employees’ identities and diverting their tax payments.”
A federal prosecutor reported
that the payroll manager used the embezzled funds to buy a luxury car, to purchase a
second home in San Diego, and to travel.
When initially confronted about her embezzlement scheme, the payroll manager had
“denied it completely.”
She confessed when she was shown the proof that prosecutors
had collected. During her sentencing hearing, the payroll manager pleaded with the federal
judge to sentence her to five years probation but no jail term. She told the judge, “I cannot
say how sorry that I am that I did this, because it’s not who I am. I have no excuse for it.
There is no excuse in the world for taking something that doesn’t belong to you.”
1. Identify the key audit objectives for a client’s payroll function. Comment on objectives
related to tests of controls and substantive audit procedures.
2. What internal control weaknesses were evident in the Dodgers’ payroll system?
3. Identify audit procedures that might have led to the discovery of the fraudulent scheme
masterminded by Campos.
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