Question

What were internal controls missing or lacking that allowed the fraud to be perpetuated in WorldCom?

What red flags were present?

What lessons did you learn from the book Extraordinary Circumstances?

Answer 1

World com fraud at 3.3b$ was largely due to misrepresentation and manipulation of accounting standards where customers losses due to uncollected payment were not displayed on balance sheet and rather various cash reserves were used to hide them while biggest write off worth 50b$ were made.

The internal controls like Variance at Risk were missing which was biggest red flag and lack of ethical audit and strict risk management framework were fairly absent which allowed scandal to surface.

From above lessons we learn that Organisation must have strict standards and controls and abide by laws like FCPA, Sarbanes oxley Act, Dodd Frank act to avoid such conspiracies.