FRAUD CASEBOOK 

MCI WorldCom 

Read the following articles or other related articles regarding the MCI WorldCom case and then answer the questions below:  

Sources:

Zabihollah Rezaee and Richard Riley, Financial Statement Fraud: Prevention and Detection (Wiley, 2010), “MCI: The Fraud That WorldCom Acquired,” pp. 216–17. 

Neil Weinberg, “Aggressive Accounting: Ring of Thieves,” Forbes.com, June 10, 2002.  

Mike Celizic, “White Collar Ex-con: Jail Looms for Mortgage Execs,” MSNBC, October 8, 2008.  

For a more complete description of these events, see Pavlo, Walter, Jr., and Neil Weinberg, “Stolen without a Gun: Confessions from Inside History’s Biggest Accounting Fraud – the Collapse of MCI WorldCom,” Etika, 2007. 

Short Answer Questions 

1. How much cash did Mr. Pavlo steal in six months? 

2. What was the accounting inadequacy at MCI that Mr. Pavlo faced?  

3. At least how many financial reporting (accounting) schemes did Mr. Pavlo use for the MCI collection problem?  

4. What opportunity did Mr. Pavlo perceive would allow him to perpetrate his fraud and get away with it?  

5. How much time did Mr. Pavlo spend in prison?  

6. Who were Mr. Pavlo’s unintended victims?  

Discussion Questions 

1. From the excerpt and article, describe the rationalizations used by Mr. Pavlo.  

2. Given that Mr. Pavlo’s fraud was restricted to an accounts receivable embezzlement scheme, what symptoms might auditors observe?  

3. Given that Mr. Pavlo’s fraud was restricted to an accounts receivable embezzlement scheme but was buried among legitimate accounts receivable transactions, describe the three most effective data extraction and analysis tests (using IDEA, Picalo, or ACL) for accounts receivable that you believe would identify this fraud and state why you believe them to be effective. (Limit your answer to no more than one page.)