Cardillo Travel Systems, Inc. Flashcards
Who was Raymond Riley?
Cardillo’s in-house attorney
Who was A. Walter Rognlien?
74 year old chairman of the board and CEO of Cardillo Travel
Systems, Inc.
Who was Russel Smith?
Cardillo’s controller
What was on the affidavit relating to the company’s transaction with United Airlines that top executives were trying to get Russell Smith, the controller to sign?
Nature of the transaction involving a $203,000 payment by United Airlines to Cardillo
And failed to disclose the purpose of the payment or what the
Funds were being used for
What statement did Russell Smith know to be incorrect on the affidavit?
2) Why was this significant?
Affidavit stated stockholders equity to exceed $3 million
(Russell knew this was a lie)
2) Cardillo at the time was involved in a lawsuit where the court issued an injunction to maintain stockholders’ equity at over $3 million
2 reasons Russell Smith, refused to sign the affidavit on May of 1985?
1 blatant misrepresentation concerning the company’s
Stockholders’ equity
2 sense of uneasiness regarding United Airline’s payment to Cardillo
(May 1985)
Who was Esther Lawrence?
Firm’s 44 year old president and chief operating officer (COO)
Also Walter Rognlien’s wife and confidante
She assumed control of the company’s day to day operations
In 1984
Who was present (3) to try to get the controller to sign the affidavit?
A. Walter Rognlien
Raymond Riley
Esther Lawrence
Company History
Founded in 1935, Purchased by Rognlien in 1956
Cardillo Ranked as the 4th largest company in the travel agency
Industry and was the first to be listed on the national stock
Industry
Financial history of Cardillo since acquired by Rognlien?
Cardillo’s annual revenue had steadily increased since Rognlien
Acquired the company, revenue increased to $100 million by 1984
Company started experiencing serious financial problems in
1982
Why did Cardillo post collective losses of $1.5 million between 1982 and 1984?
Due to An aggressive Franchising strategy implemented by Rognlien
Company posted $1.5 million in losses between 1982 and 1984 from dramatic increase in operating expenses
In 1984 alone, the strategy doubled number of travel agency franchises
Operated by Cardillo
What did Rognlien in May 1985 explain to the controller, Russell, about the $203,000 payment from United Airlines?
Payment was intended to cover expenses incurred by Cardillo in changing from American Airlines’ Sabre computer reservation system to United Airlines’ Appollo system
What did Rognlien want Smith to do about the $203,000 payment from United Airlines to Cardillo?
2) Why did Smith refuse?
Record the payment immediately as revenue, so the company would meet the $3 million minimum stockholders’ equity threshold
Established by court order
Smith refused because it was improper recognition of revenue since the payment of $203,000 was refundable to United airlines if it wasn’t spent
What did Rognlien do when Smith refused?
Fired him
Who was Helen Shepherd?
The audit partner supervising the 1985 audit of Cardillo by Touche Rosse, who saw a red flag with recognizing the $203,000 payment as a commission in November of 1985
When and what did Cardillo record the adjustment entry for the payment of United Airlines?
Adjustment entry recorded in Late June of 1985
Dr Receivables - United Airlines. 203,210
Cr Travel Commisions and Fees. 203,210
Shepherd’s subordinates had discovered the adjusting entry during their…
Second- quarter review of Cardillo’s Form 10-Q statement
When Lawrence was asked about the adjustment entry what did she tell the auditors?
2) How did the auditors respond?
Lawrence told the auditors that the adjustment entry involved commissions earned by Cardillo from United Airlines during the 2nd quarter
2) the auditors accepted Lawrence’s explanation without corroborating with other audit evidence
