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And the Fraud Continues

In: Business and Management

Submitted By sheiku20008
Words 1723
Pages 7
Introduction
This is a complex fraud and financial crime that has an element of collusion. The collusion is among individuals, Walt Palvo and his cohorts, within the organization. It is a fraud that involves a controller or sophisticated participant within the organization’s financial reporting structure. Palvo worked at MCI in the carrier’s financial unit and was one of a group of managers responsible for billing and collections for the carrier business segment. This is an organized crime and to a greater extent, a white collar crime, comprised of respected, business and professional men. These executive level individuals worked in concert (collusively) to override the system of internal controls through the sophisticated use of journal entries, other financial reporting choices and through material and unusual transactions. Due to the unique nature of this type of fraud, large dollars are involved and the damage can be devastating.
1. Discuss the internal control weaknesses that existed at MCI that contributed to the commission of this fraud.
When complex fraud and financial crimes are involved, as in the case of MCI, the first thing that comes to mind is the internal control structure. This is the primary concern –that the internal controls are generally ineffective in preventing fraud and other financial crimes. MCI is not an exception. The internal control weaknesses that existed at MCI that contributed to the commission of this fraud can first of all be seen in the area of segregation of duties. This internal control of segregation of duties helps to ensure that no individual controls every aspect of a transaction and separates the custody, accounting and approval function. This was very lacking at the MCI. As a matter of fact, Palvo was responsible for billing and collections for the carrier business segment, which created the opportunity for fraud.
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