Executive Roadmap to Fraud Prevention and Internal Control

An Inside Job

Walt Pavlo began working at MCI Telecommunications, Inc., in 1991. Within three years, he was a senior credit and collections manager responsible for $1 billion in accounts. He handled major customers, including long-distance resellers AT&T and Sprint. Then, in 1995, the reseller market went soft. Pavlo's customers stopped paying. Under pressure to perform and feeling wronged by deadbeat customers, Pavlo had an idea.

Unbeknownst to MCI, Pavlo had an accomplice approach MCI's delinquent customers posing as an angel investor who wanted to buy their companies. As part of the deal, the accomplice offered to pay off their MCI debt - in exchange, of course, for a "reasonable" fee. Many customers gave the accomplice money, though their debts to MCI never were paid. Rather, Pavlo - the inside man at MCI - did a little creative bookkeeping and "disappeared" the debt. Pavlo's supervisors, unaware of what was really going on, were thrilled: It looked like he was meeting his targets, so they figured he must have been doing something right. Meanwhile, the customers' debt repayment fees were going into a Cayman Islands bank account. Within six months, Pavlo and...