Internal Controls: Even World Series Champions Need Them

Posted by Nancy Johnson on August 31, 2011

In the wake of embezzlement charges against a San Francisco Giants employee, it appears the 2010 World Series Champions need better defense in their finance department as well as on the baseball diamond.  

The San Francisco Chronicle reported yesterday that former Giants payroll manager Robin O'Connor, 41, "has been accused of redirecting payroll money into her personal accounts between June 2010 and June of this year." The Giants discovered the theft only after being contacted by Bank of America, who had received a home loan application from O'Connor that included a letter on Giants letterhead and forged by O'Connor to explain two large deposits into O'Connor's bank account. 

The Internal Audit Analysis

Reviewing the case from an audit perspective, it's debatable whether the amount involved would be considered material at this point for an organization that in 2010 had record revenues of $230 million and in 2011 is paying players alone a total of $118.2 million -- up 20.8% from its 2010 player payroll. 

Still, any time fraud happens, an organization needs to look at itself and ask, "Where's the weak link?" This case is indicative of a weakness in the Giants' internal controls over payroll, an area that represents most companies' biggest expense.

Particularly disconcerting is that the fraud took place over a one year period and that its discovery was not triggered by anyone afiliated with the SF Giants organization, other than O'Connor. This not only suggests that the organization needs to implement more robust financial controls, it also makes us wonder why players (or at least their financial managers) were not paying attention to the difference in the money being owed to them and what was being deposited into their bank accounts. 

Why the Giants Might Have Been Vulnerable to Fraud 

High-profile cases like these remind us that fraud is always a surprise and often happens when companies -- and the executives who work for them -- are so focused on achieving success in their area of expertise (like winning baseball games), they neglect the financial infrastructure that is truly fundamental to that success.

In that respect, the Giants organization probably was especially vulnerable to embezzlement from June 2010 to June 2011. During this time period, the Giants organization experienced a roller-coaster-like battle to win their division, league, and World Series titles; a promising start to the 2011 season; and then a bitterly disappointing slide in May and June 2011, with bad performances on the field and heartbreaking player injuries. It's easy to see how these business distractions could set the stage for fraud.

Suggested Payroll Controls

To be fair, the scheme O'Connor managed to perpetrate would have been hard to detect with even average payroll controls. One speculation is that O'Connor must have added her personal bank account information as an additional direct deposit account for other Giants' employees, including some players. When those individuals were paid, a portion of their earnings went into O'Connor's bank account.

Many payroll service companies do not check names against account numbers, so there would have been no red flags raised by the Giants' payroll processor. The Giants and other organizations need a control that first identifies all employees with multiple account entries for direct deposit, and then on a random basis (so no one can outsmart the system) verifies that all those accounts are valid and authorized by the employee.   

Vibato Can Help the SF Giants (and You) with Internal Controls 

Is this just another example of the Giants organization's inability to be be in control of its game? Possibly. Since we're not baseball experts, we can't give advice on what the SF Giants' next steps should be on the field. But off the field, the Giants certainly could benefit from our standardized, integrated approach to internal control over financial reporting. We won't even ask if they took back O'Connor's World Series Championship ring. 


Tags: Internal Controls, fraud