World Com Case Essay

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WorldCom: internal audit lessons to be learnt
On June 9 2003, the U.S. Bankruptcy Court of New York issued a report on the WorldCom accounting fraud that expands on the court's earlier findings of mismanagement, lack of corporate governance, and concern regarding the integrity of the company's accounting and financial reporting functions.

Supervised by former U.S. Attorney General Richard Thornburgh, the study was commissioned by the court to investigate allegations including fraud, mismanagement, and irregularities within the company. One section of the more than 200-page report, "Accounting and Related Internal Controls," details WorldCom's weaknesses in internal and external audit processes. It also expands on the failings within …show more content…

In spite of the dual reporting line to the audit committee, the internal audit group reported and answered to senior management, including the chief financial officer and chief executive officer, who were both implicated in the fraud. Thornburgh indicated that the viability of the internal audit department was dependent on the "whim" of senior management. For years, internal audit leadership sought to gain company acceptance by focusing on value-added audits and projects rather than monitoring the sufficiency of internal controls. Management would assign special, non-audit projects using unscheduled resources, and the internal audit department did not meet its audit plan objectives, in part, because of the time and resources devoted to these projects.

Lack of budgetary resources seriously Internal audit resources were insufficient in comparison to impacted the internal audit function peer companies. The audit committee failed to follow through on discussions with internal auditing about the adequacy of staff. WorldCom's internal audit department was half the size of internal audit departments in peer telecommunication companies, according to the 2002 Global Auditing Information Network study, conducted by The Institute of Internal Auditors. The Thornburgh report concluded that internal auditing's limited resources were inappropriate

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