...And the Fraud Continues Tanya Niessen Professor Bill Makkawi Forensic Accounting April 22, 2012 Existing Internal Control Weaknesses at MCI There were several existing internal control weaknesses at MCI in which Walt Pavlo used to his advantage when he perpetrated the fraud. One weakness was that Pavlo helped create the accounts receivable process and therefore knew the strengths and weaknesses of the process (Lyons & Tocco, 2007). This allowed Pavlo to manipulate the records to his advantage and defraud MCI within about two years before being caught by Jim Wanserski. Another weakness is the fact that Pavlo seemed to do all the steps in the accounts receivable process by himself, which included receiving payments and writing off receivables. Pavlo used his position to his advantage and came up with tricks to help him steal millions of dollars from his employer. Pavlo’s tricks allowed him to hide his fraud from everyone until he was caught. One such trick was that Pavlo converted accounts receivable items into notes receivable. This allowed the accounts receivable item to be listed on the balance sheet as an asset rather than an expense. Another trick Pavlo used was to mask the bad debt by using the unapplied cash from the funds that were not allocated to specific accounts within MCI. In order for the expenses from the write-off receivables not to hit the income statement, Pavlo would allocate the additional funds over $50 million to the delinquent or bad...
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...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...
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...ACCOUNTING | Case Study 1: And the Fraud Continues | SOLIAT KOSOKO | | Professor: Dr. Timothy Franklin Deleanor Brown | 1/20/2013 | Introduction This case demonstrates organized crime, occupational fraud and abuse. This crime is commonly seen among individuals and organizations that are in a lot of social and financial pressures. Some of the crimes involve organize crime are money laundering, mail and wire fraud, conspiracy and racketeering. Any organization that has weak or no internal control gives employees the opportunities to commit fraud or use company assets without permission. In this case there were multiple internal control weaknesses that allowed Pavlo to carry out the fraud and the different tricks he used to cover the whole scam. In this paper I would be discussing the internal control weaknesses that existed at MCI and contributed to the commission of this fraud, identifying and justifying the approach I would take if I suspected fraudulent activity within an organization, the ethical nature of Pavlo’s actions in this case and the theory related to crime causation to this case. Discuss the internal control weaknesses that existed at MCI that contributed to the commission of this fraud. Internal Controls is an integral part of any organization's financial and business policies and procedures. Internal controls consists of all the measures taken by the organization for the purpose of protecting its resources against waste, fraud, and inefficiency; ensuring accuracy...
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...Bill MakkawiJuly 22, 2012 | Case 1 And Fraud Continues Forensic Accounting A company can’t work with a strong and secure accounting system. The accounting system should include strong internal controls to make sure financial statements and data are accurate and valid. Strong internal controls can prevent a company from providing false data to make their company look more profitable and steal funds from the investors and stockholders. There are several internal control weaknesses that existed at MCI that contributed to the commission of the fraud acts. One major internal control weakness was that Pavlo was able to manipulate the accounts receivable system and the changes he made to the system was not reviewed or approve by anyone. Another weakness was that Pavlo helped create the accounts receivable process and therefore knew the strengths and weaknesses of the process. This allowed Pavlo to manipulate the records to his advantage. The lack of segregation of duties takes place here because one employee was able to receive payments, update accounts receivable records and reconcile the company’s bank account. In addition to the duties listed above Pavlo was also able to write off receivables without review which played a major role in his act to commit fraud. Pavlo used his position to his advantage and was able to come up with tricks to help him steal millions from this employer. This gave Pavlo the opportunity to be able to embezzle money from the company and was able...
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...A business can not work out without an account system, which includes internal. Internal controls are used by companies to make sure financial information is accurate and valid. Strong internal controls are signs of a financially healthy company and protect the company’s integrity. Strong internal controls can also increase a company’s profitability. There are several types of internal controls that companies used to protect themselves such as: Segregation of duties, asset purchases, supervisor review, internal audits and adequate documents and records. This paper will discuss several topics from a case study about And the Fraud Continues; it’s basically about a Fraud case with MCI. The following questions will be answered below 1) Discuss the internal control weaknesses that existed at MCI that contributed to the commission of this fraud, 2) Identify and justify the approach you would take if you suspected fraudulent activity within an organization where you work, 3) Critique the ethical nature of Pavlo’s actions in the case and 4) Apply one (1) theory related to crime causation to this case. The internal control weakness that exists at MCI was Pavlo; he was able to manipulate the AR (Accounts Receivable) system because he was the creator and developer. The lack of segregation of duties takes please here because the same employee is able to receive payments, update accounts receivable records and/or reconcile the company’s bank account. This gives the opportunity to be able...
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...Case Study 1: And the Fraud Continues Forensic Accounting July 22, 2012 Abstract This case represents features of organized crime, occupational fraud and abuse. Most of these crimes involve many individuals and organizations as well as management and/or co-workers that are in a lot of social and financial pressures. Some of the crimes related with organize crime will be money laundering, mail and wire fraud, conspiracy and racketeering. With an internal control weakness employees would always look for opportunities to commit fraud or use company assets without permission. Within this case, we will see multiples internal control weaknesses that allowed Pavlo to perpetrate the fraud and how he used the tricks to mask the whole scam. We also are going to think on what was Wanserski position when Pavlo was performing the fraud. We will explore the investigation process and what type of procedures the auditor/investigator needs to follow in order to gather all the evidence. We will have the opportunity as readers to determine if MCI also had a fault by permitting or putting the pressure on his employees to comply with some guidelines instead of looking for ways to help employees to improve their work areas. Internal control is the method intended to ensure dependable financial reporting, effective and efficient department operations, and business compliance with related laws and regulations. Not having an effective internal control process will allow fraudsters like...
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...Healthcare Fraud is when false information is promoted as the truth. The fraud could show in many forms, some as simple as billing for services that are not rendered. There are many types of fraud but some of the most common are billing for services not provided, billing for more expensive service not rendered, medically unnecessary services, misrepresenting services not covered by insurance to be medically necessary in order to receive insurance payments, falsifying a patients diagnosis to do unnecessary care or surgery, unbundling, and waving a co-pays or deductibles and overbilling the insurance company. No one really knows how much healthcare fraud is costing but the FBI estimates that it is around 80 billion a year and will continue to grow as healthcare cost rise. Healthcare fraud has become more prevalent with a lot of people. Health care fraud is not just committed by dishonest health care providers. “So enticing an invitation is our nation's ever-growing pool of health care money that in certain areas - Florida, for example - law enforcement agencies and health insurers have witnessed in recent years the migration of some criminals from illegal drug trafficking into the safer and far more lucrative business of perpetrating fraud schemes against Medicare, Medicaid and private health insurance companies.(NHCAA, Retrieved January 26,2014).” Healthcare fraud is not only being perpetrated by doctors, businesses but also many others such as drug dealers, and private citizens...
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...Harry Markopolos has told his nine years of warnings to SEC officials without making any action. * Oct. 2, 2009.Jeffrey Picower, one of the greatest beneficiaries of the scheme, was found dead at the bottom of his pool. According to the autopsy report, he suffered a massive heart attack while in the swimming pool resulting in accidental drowning * December 12, 2010.Mark Madoff, son of Bernard Madoff, committed suicide and was found dead in the living room of his apartment. According to his friends, he was hopeless of the burden he had to carry which made it difficult for him to rebuild his life. * June 29, 2012. Peter Madoff, brother of Bernard Madoff pleaded guilty of fraud and was sentenced 10 years of imprisonment. He confessed that he his actions paved way for his brother to continue his business. * September 3, 2014. Andrew Madoff, son of Bernard Madoff died of mantle cell lymphoma. Andrew together with his brother were the ones who told the authorities about their father’s fraudulent activities. * March 6, 2015. David G Friehling, auditor who rubber stamped Bernard L Madoff's Ponzi scheme, was sentenced to a year of home detention and an additional year of supervised release. * August 12,2015. Irving Picard, the court-appointed trustee in the Madoff case, has reported these recent developments: * We have recovered or entered into agreements to recover approximately $10.895 billion; 100 percent of the recoveries will ultimately be allocated...
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...Flat Cargo Berhad Presented by: ABDUL RAHMAN BIN YAACOB AFIFAH BINTI HALIM MAZIAH BINTI MOKHTAR MOHAMMAD AZWAN BIN BASHIRUN MOHD ZUBAIR BIN NOR AZMAN AC088467 AC088398 AC088445 AC088323 AC086470 Presented to: SIR AZWAN ABD RASHID NABILAH BINTI SAAD AC088349 INTEGRATED CASE STUDY ACSB 413 INTRODUCTION Company Background 1997 Started operations with 2 aircraft - Boeing 737-200F - Cessna Grand Caravan Operating Primarily -Air cargo carrier Principal activities of FCB Subsidiaries -Air Freight Service and Aircraft Ground handling service 15 September 2001 -Obtained listing in Bursa Malaysia Auditor -Kenyans & Associates In 2001 to 2004 -the have a fast growing at intra- Asian air express market -demand for express transportation Services increased. -give best delivering quality services and satisfying customer demand. FCB Wholly Owned Subsidiaries Cargo management Sdn Bhd Fc Spare Sdn Bhd FCB Wholly Owned Subsidiaries FC Air Ltd FCB (SPV) Ltd Cargo Air Service Sdn Bhd FCB secured agreements with well-established companies Up to 2005 Bax Global United Parcel Service (UPS) Express Worldwide Nippon Express CityLink Nationwide Express Top Management Team Dato’ Ibrahim Samad • Chairman • Independent non-executive director • Former of Directors General for Ministry of Transportation • As a Malaysia chamber of commerce’s former president Mr Lim Loon Sim • Chief Executive Officer (CEO) • Founder for FCB • Board...
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...July 26, 2014 Fraud Theory and Prevention is getting a lot of attention these days, however preventing fraud and understanding fraud continues to puzzle corporations and is the focus of many studies and reasons why many internal controls are in place today. As an example Dr. Donald Cressey a fraud expert developed what is known as the Fraud Triangle Theory which essentially states that three elements must be present in order for fraud to occur and those are, Motive, Opportunity and Rationalization. This theory demonstrates how a highly regarded bank CFO committed fraud because all three critical elements were present which enabled him to embezzle $150,000. So in order to prevent fraud we must first understand how an individual such as Mr. McKinley can go from being a law abiding citizen to a white collar criminal. Therefore fraud prevention begins with understanding the Fraud Triangle, the importance of good internal controls and the role of external auditors and how they are all connected. First according to the Fraud Triangle “Motive is the reason people commit fraud…It is the driving force”. (Biegelman & Bartow, 2006, p. 32). In McKinley’s case the motive and driving force appears to have been the emotion of humiliation, after all he was a respectable church going family man, CPA and highly respected bank CFO. Therefore the driving force of protecting his image coupled with the need for money validates the first element of Dr. Cressey’s Fraud Triangle which...
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...T ackling Fraud, Waste, and Abuse in the M edicare and Medicaid Programs: R esponse to the May 2 Open Letter to the Healthcare Community Dan Olson, CFE June 2012 Tackling Fraud, Waste, and Abuse in the Medicare and Medicaid Programs White Paper C ontents I. Introduction ............................................................................................................ 1 II. Recommendations................................................................................................... 3 Recommendation 1 – Expand the Medicare Fraud Strike Force Model....................................... 3 Potential Savings .......................................................................................................................... 4 Recommendation 2 – Expand Integrated Data Repository .......................................................... 4 Potential Savings .......................................................................................................................... 5 Recommendation 3 – Expand “Do Not Pay List” .......................................................................... 5 Potential Savings .......................................................................................................................... 6 Recommendation 4 – Publicize Drug Expiration Dates ................................................................ 6 Potential Savings ....................................................................
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...bills on time. Now imagine the irritation those parents feel when they aren’t able to pay for a voter identification to vote in elections so they can make the attempt to make their lives better. Then on top of that most of the DMV offices are never close by African American neighborhoods. These families do not have the proper funds to pay someone for gas to take them to a DMV, buy two voter identification cards, pay the bills, and feed the children on limited funds. Voter identification laws are said to prevent voter fraud so that elections are fair; instead they hurt the African American population, and corruption still continues. Instead of trying to allow poor African Americans the equal chance to vote as those who can afford it, politicians who approve of voter identification laws are making it quite impossible for African Americans to exercise their right. Voter ID laws discriminate against poor African Americans because it causes misrepresentation, “voter fraud” is not the real problem, and it requires too much money and time to acquire one. Since many African American families are in fact poor and cannot afford proper identification to vote, this leads to misrepresentation of the African American population. Most...
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...Case 5-1 David L. Miller: Portrait of a White-Collar Criminal 1. How does Miller fit the profile of the average fraud perpetrator? David Miller looks just like a normal employee and that is the main reason he would fit right into the profile of that of the average fraud perpetrator. Those who are usually while collar workers do look like most in the world of business, and thus making them even more of a perpetrator in some cases. These type of workers do work long hours and most of the time it is because they are committing the fraud or trying to hide it. They work long hours and never take vacation but they are most likely working on the constant struggle to conceal their fraud. How does he differ? Miller differed from the profile of the average fraud perpetrator because he assured the companies he did fraud with in the beginning and took fault for his actions. Miller also said he would pay back the money he had stolen. The company gave Miller a chance and he did make good on his promise. The down side is that he may be frauding other companies to pay back the first company his frauded. How did these characteristics make him difficult to detect? These characteristics made it difficult to detect Miller because his white collar criminal image was so identical to that of the general public, and he was trusted and liked by all of his employers. Since he works inside the company, he is aware of the company’s system and weakness. And with this, he managed to exploit...
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...17 to attend school regularly. Common factors that determine benefits include gross income, family size, medical needs, unemployment, homelessness and pregnancy. Each individual or family that receives welfare has a caseworker. Each caseworker determines the benefits the family or individual receives (ehow.com (p1).” With a growing unemployment rate in America. American citizens are focused on survival by any means necessary. Even at the added cost to American tax payers fraud continues to rise across the country. Welfare regulations must constantly evolve to uncover different ways to discourage attempts of fraud on our welfare programs. These action of fraud are contributing to the financial rape and pelage of American assets that are there to help the needy. While the rush to address the welfare regulations is low. Low income individuals who are committing fraud are escaping jail time. Monthly monitoring of all fraudulent acts of public housing (HUD), (SNAP) and (TANF) are needing reinforcement and continue to be punished strongly by law. Welfare programs such as Public Housing (HUD), The Supplemental Nutritional Assistance Program (SNAP), and The Temporary Cash Assistance...
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...Memorandum To:! From:! Date:! ! ! ! Subject:! Case 3.3 — The Anonymous caller! INTRODUCTION: The purpose of this memo is to provide guidance to the anonymous caller, examine issues related to aggressive accounting and financial statement fraud, and provide descriptions of the conditions within the fraud triangle. In providing guidance to the Anonymous caller, we will compare the risks between resigning immediately and staying with the current company. Further, we will discuss other sources of advice for the caller, including legal advice and the State Board of Accountancy. In examining aggressive accounting and financial statement fraud: we will discuss the prevalence of such acts, the pressures put on accountants to perform such acts, and how to determine whether these acts are in accordance with GAAP. The conditions within the fraud triangle are: an incentive to engage in fraud, an opportunity to commit fraud, and an attitude to rationalize the conduct of fraud. We will describe the conditions that existed in the case of the anonymous caller. THE ANONYMOUS CALLER: In this situation, the anonymous caller has recently started working for a small, privatelyheld company and the executives of the company are giving their bank potentially fraudulent financial statements in order to extend their line of credit. The first action the caller should make is to meet with the executives again. The executives have no accounting background, and may not be aware of the considerable risks...
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