And the Fraud Continues Case Study

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internal control weaknesses that existed at MCI that contributed to the commission of accounting fraud

The internal control weaknesses that existed at MCI that contributed to the commissioning of the accounting fraud was related to the very fact that Pavlov had the ability and access that allowed him to manipulate the account receivable system. Since he helped in the creation of the account receivable process, he was very ware of the system's strength and weaknesses as well as how to exploit them by manipulating the system (Lyon & Tocco,2007).He was therefore able to fraudulently receive payments, update as well as manipulate the account receivable records. This allowed him an opportunity of defrauding the firm and its clients by embezzling the funds to offshore accounts.

The exact fraudulent practices and tricks that Pavlo and his co-conspirators engaged in included the following:

The identification of the account receivables that were about to be written off and their subsequent conversion into notes receivables. In this way, the expenses were never touched while Assets were created on the balance sheet.

ii. The use of the unapplied cash in the masking of bad debt as well as slow payments. This was coupled with the allocation of some huge amounts of money to bad receivables and delinquents all of which made the expenses that are related to the earlier mentioned write-off of the receivables not to appear or hit the income statement.

iii. The use of "Placeholder credits." This means that MCI was made by Pvlov to call its clients regarding their account receivables that were overdue.

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If the clients promised to immediately send their payments then MCI automatically credited their receivables even before receiving the actual cash. Pavlo's manipulation of the process of accounts receivable merely delayed the unavoidable. The recognition of the uncollectible receivable as well as the bad debt that would later on have to be reconciled on the income statement.

2. Identify as well as justify the various approaches you would take if you have suspected fraudulent activity within an organization in which you work.

Should I suspect a fraudulent activity to be taking place within an organization where I am employed, I would employ professional skepticism the best approach for the detection as well as the investigation of the suspected fraud (Carpenter, Durtschi, and Gaynor, 2002;Fullerton & Dustschi,2004).The SAS No. 1 which deals with the consideration of the codification of the auditing standards as well as the procedures to be used for auditing and fraud detection indicates that an auditor should neither assume dishonesty in the part of management nor assume an unquestioned honesty for the same. Professional skepticism requires that the auditor ir forensic examiner identify the "Red flags" that are signs of fraud. These "Red flags" are also called anomalies can be identified by via the examination or sighting of small indicators of fraud, in facts, figures, patterns, relationships as well as general breaks in pattern. The symptoms of fraud may present themselves in many forms. It is therefore prudent to conduct an investigation (an audit) in order to establish the facts.….....

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