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Transcript of WorldCom
Discovery of Fraud
WorldCom was generating profits during eeconomic downturn in the telecommunicaation industry
World com - collasped in 2002, $41 billion indebted.
Ebbers - jailed for 25 years, pay $5.5mil, mansion and other assets worth $40mil to sharholders of worldcom.
Sullivan - jailed for 5 years, pay $10mil worth of mansion and surrender $200,000 in his 401(k) account.
Employees - 17,000 lost their jobs.
Shareholders - lost billions of dollars.
Suppliers - not getting paid.
Where is WorldCom now?
Principle of Professional Competence and Due Care - WorldCom
Principle of Professional Competence and Due Care - Arthur Andersen
Arthur Andersen also failed to detect the ongoing fraud
Arthur Andersen was charged guilty for being apart of the Enron Corporation fraud, where they destroyed relevant documents that were evidence of the case. Their integrity was already questionable.
Principle of Professional Behaviour
By being incompetence and involved with accounting scandals that questioned their integrity, both WorldCom’s accountants, internal audtiors and external auditors, Arthur Andersen has discredit the profession
What Did WorldCom Do?
Principal of Integrity
WorldCom capitalized $3.8 billion of its line costs as capital expenditure instead of current expenses.
Both the net income and assets were inflated
The financial statement that WorldCom reported were hence false and it misled investors and shareholders into believing that WorldCom was making promising profits instead of losts.
Codes Of Professional Conduct and Ethics Violated
WorldCom’s internal auditor failed to detect the ongoing fraud of $3.8 billion
Could not produce documents and records to support the transaction.
Scott D Sullivan
.Murray Waldron & William Rector
.1983 Bernard Ebbers as CEO
.Merge with MCI & other telecommunication
.2000 failed merge with Sprint Corp.
.Fail merge with
.$400 mil for
.Oversight of External
.Push the blame
How did WorldCom got found out?
Principle of Objectivity
Sullivan allowed his emotions and interest to cloud his judgement.
He also persuaded his subordinate, Buford Yates and David Myers to help him in accomplishing the fraud
Buford Yates and David Myers allowed undue influences of Bernard Ebbers to affect their professionalism and also their business judgments.
Worldcom is now doing business under the MCI brand name and is the nation's second largest long distance company with more than 20 million customers.
Financial Gimmickery was used
in order to meet wall street analysts
and investors expectations.
This resulted in a rise in expenses as a percentage of its total revenue.
In 1999, WorldCom's revenue growth and stock priced declined
WorldCom decreased the amount of money held in its reserve by $2.8 billion and moved it to the revenue part of its financial statements to cover liabilities that the WorldCom has acquired.
Scott Sullivan mislead investors in thinking that WorldCom is actually making a profit
What did WorldCom do?
In 2000, there was an economic downturn in the telecommunication industry
Classified operating expenses as a long-term investment
Journal entry of $500 million of computer expenses with no supporting evidence
In 2002, this raised supiscion among The US Securities and Exchange
Competitior of WorldCom, AT&T Corp were making losses
The internal audit team of WorldCom recieved tips that there were accounting irregularities
Cynthia Cooper, WorldCom's internal auditer, discovered classification of operating expenses as capital expenditure
She confronted Scott Sullivan and then reported the frauds to the head of committee of WorldCom’s board of directors, Max Bobbit
On June 25 2002, WorldCom made its public announcement about the frauds and accounting irregularities in the company