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: And the Fraud Continues - Case Study Example

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: And the Fraud Continues

To illustrate, the company did not have proper internal control mechanisms to keep the level of bad debts and accounts receivables within the fixed range. Hence, even poorly performing firms obtained huge amounts of credits from MCI and this condition adversely affected MCI’s operational efficiency. When receivable collection periods went beyond the stipulated timeframe, the organization was forced to write off some of its receivables. Undoubtedly, this condition caused the firm to experience a rise in its expenses and thereby a decline in earnings per share. Ultimately, MCI’s stock price dropped due to the decline in EPS. As Lyon and Tocco (n. d.) point out, Pavlo used a variety of accounting tricks to convince the management that the level of bad debts and amount receivables had fallen under the safety range. In other words, Pavlo totally manipulated the accounting system to conceal the actual state of affairs of the company. It is obvious that the absence of a well executed internal check system assisted Pavlo to apply unfair accounting tricks to deceive the company management. A person is not allowed to carry through a transaction from beginning to end under the internal check system. ...
situation aided him to employ accounting malpractices such as ‘unapplied cash’ and ‘placeholder credits’ to conceal MCI’s actual financial status. Approaches against Fraudulent Activities If an individual suspects fraudulent activity within the organization where he works, it is advisable for him not to make any false allegation. In addition, he must never try to take any unfair advantage of that fraudulent activity. Every organization has a distinct corporate culture and hence a specific mechanism to report fraud. It is recommendable for the individual to strictly adhere to the accepted fraud reporting mechanism of the organization. If an individual suspects fraud in his organization, firstly he must make an immediate note of his concern. He should specifically try to note relevant details concerning the fraud including telephone conversations, date and time, or names of parties involved. Secondly, the individual has to report the fraud to someone with proper authority and experience. Generally, it is better to report fraud to line managers, internal auditors, or whistleblowers. In addition, fraud may be reported to the Monitoring Officer, Chief Executive, or the Director of Finance. The individual should not make any delay in reporting the suspected fraud to proper authorities because such a situation would cause the organization to suffer further financial loss. Finally, the individual should ensure that the authority has taken proper actions over his fraud report; otherwise, he must report the case to higher authorities. Under no circumstance, the individual can disclose his suspicion to public or any other unauthorized person. Ethics of Pavlo’s Actions While examining the case context, Pavlo’s actions cannot be ethically justified from any ...Show more

Summary

Case Study 1: And the Fraud Continues Case Study 1: And the Fraud Continues Introduction Accounting fraud is one of the greatest threats to the long term sustainability of organizations today. The last decade witnessed a series of corporate failures in the United States due to accounting fraud…
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