FORENSIC ACCOUNTING

Forensic Accounting



Forensic Accounting

Case 1

Introduction

WorldCom or MCI filed for bankruptcy on July 21, 2002, after revealing that they had manipulated the accounts and had suffered losses for three years, when they had declared profits. The debt amounted to 41,000 million dollars. The public prosecution said that conspiracy was motivated by the pressure exerted on banks Ebbers, who had lent $400 million secured by their shares in the company. The prosecution closed its case with a mocking play on words: "WorldCom became Worldcom" [World Timo]. The largest bankruptcy in U.S. history titled newspapers. This is not a simple expression. It was the concealment of financial and economic reality for a long time, since the second largest telecommunications company in the United States and the first operator worldwide Internet services, meant to have a thunderous fall.

At that time, when placed in the shelter of Chapter 11 of federal law competitions, employed 85,000 employees and had 20 million subscribers in 65 countries. Pavlo was the employee who was suspected to this fraud.

Internal control weaknesses

There were some internal weaknesses of the company as they did not check initially and realized after so much loss. The defendant claimed not to have seen or know many of the documents presented by the prosecution against Pavlo, although they would have passed through his office. The documents showed the decline in profits during the period that lasted for fraud, and denied the good results announced publicly by management (Lynne, 2003).

Once they started knowing the accounting maneuvers, the company went bankrupt. The bankruptcy of the company also opened the issue of astronomical executive salaries. Since the Reagan years, the gap between the incomes of employees and those of the leaders of firms receiving salary did nothing to progress dramatically. According to Business Week, in 1980, a CEO earned 42 times more than half the workers. In 1990, he won 85 times. However, in 2000, he earned 531 times more. In addition to the damage suffered by individuals and the involvement of the public credibility of U.S. firms, we add the enormous loss by the collapse of an enterprise of the importance of WorldCom. Accounting maneuvers to hide losses collapsed telecommunications giant, which drowns in debt dramatically, so has had to take the decision to reduce its workforce by 17 thousand people, i.e. more than 20 percent of its employees. It has reached an agreement with their creditors that allows them to exit bankruptcy. As for the future of WorldCom, it was assured that they intended to sell some of the 70 firms acquired by Ebbers in their mad rush for growth and that would shed unprofitable businesses in Latin America and Asia. In May 2005, the new executive of the company decided to sell its assets to the telephone network giant Verizon.

Approach to deal with fraudulent activity

If this kind of fraud would have happened in my company, I might do the same as the WorldCom did. They changed their name to MCI and started all ...