Assignment # 3 Worldcom Accounting Scandal

Since the 1960s, the public value of whistle blowing has been increasingly recognized. Whistle blowing statutes protect from discharge or discrimination an employee who has initiated an investigation of an employer’s activities or who has otherwise cooperated with a regulatory agency in carrying out an inquiry or the enforcement of regulations. Many states have enacted whistle blower statutes, but these statutes vary widely in coverage. Some statutes apply only to public employees, some apply to both public and private employees, and others apply to public contractors. Under the federal False Claims Act, any person with knowledge of false claims or fraud against the institution may bring a lawsuit in his or

The various forms of retribution that whistle-blowers endure at the hands of employers both financially and psychologically for attempting to correct mismanagement, fraud, and dishonesty are often too much for the whistle-blower to bear. Careers are in jeopardy because individuals with strong ethics decide to pursue law suits against their employers. One example is where the US Forest Service employees found their careers ruined by either demotions or loss of jobs when caught speaking out in favor of the environment or sound science, or when

Bob Schein, is a vice president of human resources at Glefair Electronics, as a listed company, Glenfair was required by the securities and exchange commission to issue public sales and profit forecasts Glenfair Electronics had over 10,000 employees and a reputation for producing high-quality electronic components used in a number of manufacturing applications.the company had begun to experience a slowdown in product demand. And their share price had declined as well in the last year and a half. Anwar patel joined Glenfair after completing his digree in accounting five years ago,for the past three years,partel had been preparing Glenfairs

To file a claim, whistleblowers must first file with the Secretary of Labor. The Secretary of Labor has 180 days to make a decision, and only if that time lapses can the whistleblower file their complaint directly with the court. Regardless of which way the case is filed, if the plaintiff succeeds relief includes “all [that is] necessary to make the employee whole.” Thus, relief includes “reinstatement with seniority, back pay with interest, and costs.” It is important to point out that while SOX provides protection for whistleblowers, it does not provide any kind of incentives for employees to blow the whistle in the first place.

Prior to 2002, there was very little oversight of accounting procedures. Auditors were not always independent and corporate government procedures and disclosure provisions were inadequate. Sometimes, executive compensation was tied to the stock of the company which created an incentive to manipulate the stock price by using fraudulent accounting practices to make it look like companies were making more money than they actually were. The Sarbanes-Oxley Act of 2002 was introduced because of the collapse of several major corporations due to these practices. This paper will

Jackson and Raftos (1997) referred to whistle blowing as an avenue of last resort. Employees find themselves in these situations when the authorities at their organisations have failed to take actions on reported issues affecting that organisation. Wimot (2000) likened whistleblowing to a spectrum. At one end of this spectrum whistleblowing would only cause minimal pain and scars on the stakeholders and organisation while on the other end is the worst scenario where the whistleblowing effects are turbulent and often experienced to be negative to all those involved (ibid).

SNC-Lavalin Group Inc. is an engineering and construction company headquartered in Montreal, Canada. It is one of the top five global design companies in the world. The company has been involved in major engineering and construction projects in the world in Canada, Madagascar, Australia, and Spain. The company has more than 30,000 employees and a turnover of over 6 billion Canadian dollars. Recently in March of 2012, the company's CEO, Pierre Duhaime resigned as a result of breach of accounting ethics. It was found that the CEO had misallocated payments to agents totaling to $56 million. This included $33.5 million which the company's chief financial officer and another company executive had refused to sign off on ADDIN EN.CITE Lemer2012284(Lemer, 2012)28428423Jeremy LemerSNC-Lavalin head resigns over 'breach of ethics'Financial Times2012New YorkThe Financial Times Ltdhttp://www.ft.com/cms/s/0/5549bce4-7760-11e1-827d-00144feab49a.html#axzz2AEVBzXtxOctober 25th 2012( HYPERLINK l "_ENREF_2" o "Lemer, 2012 #284" Lemer, 2012).

Before 2002, shocking scandals in the stock markets generated substantial losses to investors and, for a time, the United States economy was in near chaos. Enough evidence of impropriety, financial statements, market analysts, politicians and company executives, emerged to increase investor skepticism for a long time (Larson, Thompson and Walters, 2004). The primary focus of this problem was the concerns regarding the ethical behavior of business enterprises and the effectiveness of accounting and auditing norms (Larson et al. 2004). The Sarbanes-Oxley Act of 2002 was signed into law by President George W. Bush to enhance the public's confidence in the accounting profession (Larson et al., 2004). This Act, considered one of the most noteworthy

Several theories indicate why the whistle-blowing process has become more prevalent and characteristics or processes encourage individuals to come forward a report instances of wrongdoing or making organizational behaviors public knowledge (Lennane, 2012). The process of whistle-blowing often involves an individual being conflicted between loyalty to their organization or their belief that they have a responsibility to protect public interest above the practices of their organization (Soma & Nirmala, 2011). Individuals may attempt to initiate

On March 15, 2005 former CEO of WorldCom, Bernard Ebbers sat in a federal courtroom waiting for the verdict. As the former CEO of WorldCom, Ebbers was accused of being personally responsible for the financial destruction of the communications giant. An internal investigation had uncovered $11 billion dollars in fraudulent accounting practices. Later a second report in 2003 found that during Ebber’s 2001 tenure as CEO, the company had over-reported earnings and understated expenses by an astonishing $74.5 billion dollars (Martin, 2005, para 3). This report included the mismanagement of funds, unethical lending practices among its top executives, and false bookkeeping which led to loss of tens of thousands of its employees.

WorldCom was the ultimate success story among telecommunications companies. Bernard Ebbers took the reigns as CEO in 1985 and turned the company into a highly profitable one, at least on the outside. In 2002, Ebbers resigned, WorldCom admitted fraud and the company declared bankruptcy (Noe, Hollenbeck, Gerhart, &Wright 2007). The company was at the heart of one of the biggest accounting frauds seen in the United States. The demise of this telecommunications monster can be accredited to many factors including their aggressive-defensive organizational culture based on power and the bullying tactics that they employed. However, this fiasco could have been prevented if WorldCom had designed a system of checks and balances that would have

P., & Coulter, M. K., 2012, p. 152), although it seems none of WorldCom’s executive management team seemed to feel this way. Many steps could have been taken to prevent the collapse of the WorldCom empire, but only a few key managers held the power and none were willing to take action. One control that did not exist in WorldCom’s culture was allowing both internal and external auditors access to all necessary documents and statements. Without full disclosure of these items no one could see how many risks the company was taking by making fraudulent entries against their books. Also the external audit team, Arthur Anderson, held WorldCom as one of its best customers which was a major conflict of interest. This relationship lead to many fundamental mistakes from Anderson not keeping pressure on WorldCom and getting all vital information that would prove how poorly the company was being run. Had they been operating transparently, auditors and employees would have seen the accounting deception and could potentially have stopped it prior to the company’s collapse. In addition, by employing multiple auditing firms many of the mistakes being made may have been caught and discontinued from the beginning.

Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.

For these reasons, corporate financial accounts do not provide accurate or sufficient information to corporate managers, investors, or regulators. This leads us to recommend that the SEC allow each stock exchange to set the accounting standards for all firms listed on that exchange and to promote the development of industry-specific non-financial accounts to complement the financial accounts (After Enron 53). The most important lesson of the Enron collapse is that every link in the audit chain including: the audit committee and the board, the independent public auditor, the bankers and lawyers that aided and abetted the misrepresentation of Enron’s financial condition, the credit-rating agencies, and the Securities and Exchange Commission failed to deter, detect, and correct the conditions that led to that collapse. Although not a part of the formal audit chain, most of the market specialists in Enron stock and the business press were also late in recognizing Enron’s financial weakness (Corporate Aftershocks 12).

This paper will discuss the corporation WorldCom, a telecommunications company that was based in Mississippi. In 2002 WorldCom was involved in one of the largest accounting scandals in the United States. WorldCom inflated its assets by nearly $11 billion dollars, which eventually lead to about 30,000 employees losing their jobs, as well as, 180-billion dollars in losses for its investors. The CEO at the time of this accounting fraud was Bernard Ebbers and led to him receiving a 25-year prison sentence. This paper will go into the details of how WorldCom was able to manipulate its accounting records to deceive its internal auditors, as well as, investors.