Case Study 1 – And the Fraud Continues
Heidi Janis Casazza
Strayer University
ACC/571
Dr. Timothy Franklin Deleanor Brown
January 27, 2013

Case Study 1 – And the Fraud Continues Since the turn of the century, many financial scandals have been discovered, such as MCI Communications Corporation (MCI). Financial scandals can be minimized by the use of effective internal controls. According to Chao and Foote, effective internal controls reasonably prevent material misstatements in financial reporting and fraud while weak internal controls have the opposite effect (2012). Extensive research about the MCI’s financial scandal has provided proof that Chao and Foote’s analogy of internal controls is correct. Ultimately, the problems MCI had were caused by a weakness in internal controls, which causes MCI to be a prime example of how weak internal controls can be disastrous and lead to the bankruptcy of a company.
The Situation That Led to MCI’s Downfall MCI Communications Corporation (MCI) was a communication company that primarily dealt with resellers, which means MCI would sell or lease time to other communication carriers who in turn resold the time to other businesses and consumers. According to Lyon and Tocco (2007), MCI’s revenue grew from about $240 million to about $650 million a month in account receivables. In addition, the growth in revenue caused the bad debt percentage to increase significantly in 1995 along with a significant increase in accounts receivable that exceeded 90 days. However, MCI appeared to be determined to keep their bad debt percentage to two percent and account receivables exceeding 90 days between five and seven percent regardless of the company’s recent growth.
In order for MCI to keep the percentage ranges for bad debts and account receivables exceeding over 90 days Pavlo, who was responsible for collecting receivables from