By any true accounting, the deed was fraud: a former financial services manager at MCI recounts what happened in a well-publicized case that he came to know intimately, and offers advice to others about how to deal with fraud and any ensuing litigation.

• Author: Wanserski, Jim
• Position: Fraud - Editorial

Editor's note: FEI Atlanta Chapter member Jim Wanserski has uncovered fraud multiple times--at Sprint, Telecom USA and MCI--and has assisted some of his consulting clients in ferreting it out. During his Sprint tenure, his success spurred internal clients to seek his help. Those experiences, common sense and a natural skepticism positioned him to uncover a large receivables fraud at MCI, putting the perpetrators behind bars. Here is his first-hand account.

Data from the Association of Certified Fraud Examiners (ACFE) indicates outsiders are far down the list in terms of uncovering fraud. My own experience confirms that active managers have the best opportunity to detect fraud and the direct responsibility to do something about it. We need to act more aggressively on our instincts.

I have worked for a variety of large companies, in staff, auditing, management and consulting roles. I have uncovered fraud multiple times. In retrospect, that prior experience prepared me to uncover and deal with a multi-million dollar fraud at MCI Inc.

My observations and descriptions of events are generated or supported by sworn testimony given by me and others in the civil and criminal litigation, supplemented by my own personal knowledge and experiences. Here is the story:

A decade ago, I was the Director of Customer Financial Services at MCI, responsible for nationwide credit and collections for all commercial customers. One line of business was "carriers," wholesale customers who established their own customer bases and provided telecommunications services via capacity purchased from facilities-based providers like MCI. Management of carrier billing and collections came to me in April 1996, on the heels of the two largest disconnections of service experienced at MCI. I was tasked to clean up this portfolio. From April 1996 until his separation, Walter Pavlo, then a senior manager, reported to me.

Rules Were in Place

My primary emphasis was on enforcing MCI's customer contracts. Each carrier contract included payment terms, surety and specific descriptions of all requirements as dictated by contract execution processes. Leverage for straightforward collections action existed. Policy documents addressing employee behavior, the rules of engagement for committing the company contractually and who was authorized to do so had been distributed in late 1996. The "rules of the road" were vividly clear.

Ultimately, I uncovered the carrier fraud executed by Pavlo and others, dealt with it internally and worked actively with white-collar crime resources. We communicated proactively and regularly with law enforcement. I also prepared for and testified in subsequent litigation, totaling 40 hours under oath.

"Proof-positive" of the fraud was uncovered in February 1997. I confronted the internal perpetrators with the inappropriate transactions they had directed. However, finding the hard evidence was merely the endgame, the "smoking gun." My own internal control and gut-level suspicions had already peaked due to a number of occurrences, behavior changes in the group and judgment lapses, if not just the difficulty in getting crisp information.

In mid-1996, several sales and business analysis people contacted me, expressing concerns about how certain...