Worldcom, A High Growth Company

As long-distance rates and revenue declined, the accumulation of debt and expenses placed a strain on the financial health of the company, threatening WorldCom’s ability to meet key-performance indicators and earnings projections. Since WorldCom management and outside analysts focus on line cost levels and trends, it was focused on lowering the line cost level expense (J. Randel Kuhn & Sutton, 2006). So it implemented two improper accounting methods to reduce the amount of line costs. First, release of accruals, the amounts set aside

The Fortune 500 Company chosen for this paper is the Lockheed Martin Corporation. Lockheed Martin is a global securities and information technology company headquartered in Bethesda, MD. Lockheed Martin employs roughly 126,000 people in several facilities throughout the world. The company's main business is in research, design, development, manufacturing, integration and sustainment of advanced technology systems, products and services. Lockheed consists of four operating units, or business areas, which consist of Aeronautics, Electronic Systems, Information Systems and Global Solutions, and Space Systems (LMC, 2011).

In the seven years (since 1994), that Lou Gerstner reigned over IBM, the company’s earnings per

Sen. Sarbanes's bill passed the Senate Banking Committee on the 18th of June 2002, by a vote of 17 to 4. On the 25th of June 2002, WorldCom revealed it had overstated its earnings by more than $3.8 billion during the past 15 months, primarily by wrongly accounting for its operating costs. Sen. Sarbanes introduced Senate Bill 2673 to the full Senate on the same day and it passed 97 to0 less than three weeks later on the 15th of July

Deception, whether intentional or not, did occur. The shareholders had a right to know the financial state of WorldCom. In Ebber’s defense, he had unscrupulous bed fellows on this board. Their intentions are also at question especially regarding their eagerness to grant Mr. Ebbers a breathtaking loan for $341 million dollar at an interest rate of 2% to shield the instability of the company’s financial situation from shareholders. There were also some concerns whether such loans were ethical from the Security Exchange Commission Enforcement official Seth Taube. He stated that large loans to senior executives are commonly sweetheart deals involving interest rates that constitute a poor return on company assets. Federal prosecutors in New York cited Ebbers 's expensive lifestyle, and his overspending, as a motive to hide WorldCom 's mounting financial troubles. The impropriety associated with the largest loan any publicly traded company has lent to one of its officers in recent memory is evident. Unfortunately, if Ebbers had pressed the matter and sold his stock, he would have escaped the bankruptcy financially whole, but Ebbers honestly thought WorldCom would recover.”

He provided personal loans to key senior executives for that purpose. One former senior manager told the Financial Times that Ebbers offered $80,000 to $300,000 loans to as many as 50 top executives. These loans were not put in writing, but it was understood that they would be repaid. How the process of Fraud became? was accomplished in two main ways: First, WorldCom's accounting department underreported 'line costs Second, the company inflated revenues with bogus accounting entries from.

WorldCom focused on shareholder value through stock appreciation (not profits or dividends) and the shareholders were highly valued. WorldCom employee's performance evaluations werealmost entirely based on "right results". (jobsite .com)

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

The fraud carried out at WorldCom amounted to a staggering $11 billion, far greater even than the accounting manipulations at Enron. Thousands of workers lost their jobs and life savings after WorldCom collapsed in the summer of 2002, and tens of thousands of investors were defrauded. WorldCom made major accounting misstatements that hid the increasingly risky financial condition of the company, by recording more than $9 billion in false or unsupported accounting entries in WorldCom 's financial systems in order to achieve desired reported financial results.

Ahmad et al. (2013) indicated that the company created $35 million in inappropriate restructuring reserves in 1996 that were reversed in 1997 to inflate income through ' 'cookie jar ' ' reserves to create fake profits and creating the illusion of a rapid turn-around (pp.8-10). Ahmad et al. mentioned that the company reported a $109 million revenue in 1997, of which over $70 million of revenue from bill and hold sales, channel stuffing by putting inventory onto the books of distributors and retailers and other inappropriate accounting practice, such as, reduction of inventory to fabricate large profits when the goods were sold, recorded some sales that were not real and restated down to $38 million (pp.8-10). Ahmad et al. mentioned that the SEC charged the CEO for violating federal laws by misrepresenting material information and settled by paying portion of the $141 million, while former controller and chief accounting officer each agreed to pay $100,000 in fines, as well as Arthur Andersen settled for undisclosed amount (pp.8-10).

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.

The fraud committed by WorldCom started in 1999, through the reversing of accruals that were associated with estimates of expected payments to line owners for the use of long-distance networks. These line-cost expenses were a significant cost for all long-distances carriers and GAAP required companies to estimate these expected payments and match the expense with revenues on the income statement. The accruals were arbritarily being overly reversed, thus reducing expenses, to hide the true picture of expenses to revenues on the income statement. Additionally, in 2001 WorldCom began identifying excess network capacity and treating them as capital expenditures. The general accounting department capitalized $771 million of non-revenue-generating line expenses into the asset account “construction in process”. This created a new asset on the balance sheet and WorldCom stopped recognizing expenses for the unused network capacity.

International Business Machine Corporation (IBM) is an American multinational that provides Information technology (IT) products and services worldwide, with headquarters in Armonk, New York, United States. The company manufactures and markets computer hardware and software, and offers infrastructure, hosting, and consulting services in areas ranging from mainframe computers to nanotechnology. Initially, IBM was founded as the Computing Tabulating Recording Company (CTR) in 1911 from the merger of the Tabulating Machine Company, the International Time Recording Company and the Computing Scale Company; The Company, Computing Tabulating Recording (CTR), later changed his name to IBM in 1924. Securities analysts nicknamed IBM Big blue due to the common use of blue color in products, packaging, and logo.

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.