THE WORLDCOM FRAUD UNDER THE COSO FRAMEWORK ANALYSIS

Abstract

Through data processing, the Association of Certified Fraud Examiners has estimated that organizations suffer losses of 5% of their revenues to fraud each year. Considering the huge impact this has on our economy, the first part of the paperwork will be focused on the origin of Fraud and on the different categories in which it is subdivided, dwelling in particular on the well-known Fraud triangle theory introduced by Donald R. Cressy. Here is where Internal Controls’ implementation becomes fundamental. In fact, the objective of chapter two is to analyse the Internal Control’s system and its role as a management supporting tool to prevent fraud. Through the definition provided by the COSO body, the chapter will analyse each element of the framework issued in 1992, focusing also on the Enterprise Risk Management, a revisited supporting framework. To conclude, the last chapter will introduce a concrete example of Fraud scam occurred within one of the biggest long-distance telecommunication companies in the US. In 2001 WorldCom confessed it had overstated earnings by more than $3.8 billion. Through the analysis of the fraud scheme pursued by CEO Bernie Ebbers, the chapter will highlight how all the concepts introduced in the first part of the paperwork are deeply interrelated. In fact, the scam is a perfect representation of how the lack of internal controls and the failure of corporate governance have been the key drivers of this important fraud scheme.