Corporate Fraud Examples

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In accordance with BrainMass standards this is not a hand in ready report but is only background help.
Step 1
The example of corporate fraud chooses is WorldCom. When the fraud took place, WorldCom was the United State's second largest long distance telephone company after AT&T. The growth of WorldCom was accomplished by acquiring other telecommunications companies. It also acquired MCI Communications.
The fraud was perpetrated at WorldCom in two ways. First, the "line costs" were recorded as capital expenditure on the balance sheet instead of being expensed. These were interconnections expenses. The second method was that revenues were inflated with bogus accounting entries from corporate unallocated revenue accounts. The company's total assets were inflated by $11 billion. This made the WorldCom scam the largest accounting fraud in US history when the scam was found in 2003 (a).
Explanation: When WorldCom's earnings were such that they would not meet the expectation of Wall Street, there was illegal action to increase the revenue of WorldCom. It reduced the amount of money it held as reserve to cover liabilities and moved it to revenues. In addition, WorldCom began classifying operating expenses as long-term capital investments. The expenses that WorldCom paid to lease phone network lines were classified as assets. There was also an entry for computer expenses of $500 million whose supporting documents were never found.

Step 2
The fraud was uncovered when tips were sent to the internal audit team and accounting indiscretions were spotted. SEC requested WorldCom to provide more information. The cause of suspicion was that WorldCom was making unusual profit whereas other telecom companies were making losses. An internal audit was carried out and it exposed ...