Worldcom : Case Analysis : Worldcom

noted that this was not out of the ordinary at WorldCom. In your opinion, was this a proper

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.

Cynthia Cooper was contemplating over this whole debacle with what was the right decision to make with her discovering “almost four billion dollars in questionable accounting entries”. (Mead) While contemplating something crossed her mind on deciding if she should speak up and become known as a whistleblower, is that her findings could cost WorldCom’s credibility, about seventy thousand employees would lose their jobs, and also pension funds that were loaded with WorldCom stock. Her job as an internal auditor she had a responsibility to WorldCom’s Stockholders and also her own conscious to do something like as the fraud that was uncovered was so

- Great job at foreshadowing to the client that an email was being sent and asked the client to let us know once its received.

The stakeholders in this fraudulent case of WorldCom consist of Bernie Ebbers, Scott Sullivan, Buford Yates, David Myers, Cynthia Cooper, and Betty Vinson belong to the company. While the other stakeholders would consist of the creditors, Andersen (accounting firm), investors, and the public. This fraudulent act committed within WorldCom impacted every single stakeholder in a way. Either in a negative or positive way, most of the impact was caused with harm to everyone. The main individuals such as Ebbers, Sullivan, and Vinson all had major consequences as resulting with the fraud. Criminal trials were a major result with their fraudulent acts within WorldCom. Cooper was a lifesaver by most of the community. Aside from these individuals, the rest also got affected by the fraud. Investments conducted by the investors were all lost within the fraud process. The impact towards much of the image for Andersen was ruined. Many of the public lost their trust on the honesty and professionalism of Andersen and other certified public accounting firms. The entire employees from the top management to the smaller group of workers stayed unemployed and some with criminal punishment.

Like several companies, Nortel stipendiary their executives with stock choices (Collins, 2011). This compensation solely inspired the tendency to be but honest regarding the company’s finances. author closely-held stock choices that solely inspired his actions to fulfill or beat the benchmark set by analysts. If Nortel’s earnings showed to be higher than the benchmark, Nortel’s stock costs would rise creating the stock closely-held by management to be even a lot of valuable. By tweaking the books to indicate the road earnings price as critical the allowable accumulation price he created the stakeholders assume that the corporate was creating extra money than it had been. “Nortel ne'er incomprehensible a benchmark over the sixteen quarters (Collins, 2011).” it had been too tempting to bump the numbers up so the stocks gave the impression to be value over they were. “Nortel’s accounting practices junction rectifier to AN investigation by AN freelance review committee, that found that insubordination with accumulation and accounting fraud were undertaken to fulfill internally obligatory earnings targets (Collins, 2011).”

This leads into my second pressure, which deals with personal lives. Employees were receiving tremendous benefits due to the company’s great performance. However, if the company did not improve, people’s salaries would be cut or even worse, their jobs would be cut. That is why so many people were willing to engage in the fraud, because they felt WorldCom was supplying a salary and benefits that other companies would not be able to match. Betty Vinson was a prime example. She knew that releasing line accruals was wrong, but needed to

Due to these criminal activities, many top executives were convicted fraud and sentenced to spend time in prison. WorldCom activities did not align with the company's overall mission and goals. The actions taken by management were not in the best interest of the customer instead they were consumed with acquisitions and increasing the value of WorldCom Shares. The management also should have considered general accounting practices during their strategic planning. Furthermore, create procedures that protect all stakeholders within the firm.

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.

The perfect fraud storm occurred between the years 2000 and 2002 involving two of the largest energy and telecom corporations in the United States: Enron and WorldCom. It was determined that both organizations fraudulently overstated assets, created assets from expenses or overstated revenues, costing investors billions of dollars and resulting in both organizations declaring bankruptcy (Albrecht, Albrecht, Albrecht & Zimbelman, 2012). Nine factors contributed to fraud triangle creating this perfect fraud storm, and assisting management in concealing the fraud until exposed and rectified.

As competition increased and the economy started to plunge in the early 2000s, Enron struggled to maintain their profit margins. Executives determined that in order to keep their debt ratio low, they would need to transfer debt from their balance sheet. “Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors” (Thomas, 2002). Executives developed Structured Financing and Special Purpose Entities (SPE), which they used to transfer the majority of Enron’s debt to the SPEs. Enron also failed to appropriately disclose information regarding the related party transactions in the notes to the financial statements.Andersen performed audit work for Enron and rendered an unqualified opinion of their financial statements while this activity occurred. The seriousness and amount of misstatement has led some to believe that Andersen must have known what was going on inside Enron, but decided to overlook it. Assets and equities were overstated by over $1.2 billion, which can clearly be considered a material amount (Cunningham & Harris, 2006). These are a few of several practices that spiraled out of control in an effort to meet forecasted quarterly earnings. As competition grew against the energy giant and their

A multitude of choices made by executives at WorldCom led to the ultimate demise of the company as it was previously known, the employees and their livelihoods’, and the trust of the American people. In a time when corporations fail to set ethical standards and provide transparency to investors, how do we change corporate culture on a national level? By analyzing choices made to improve stock prices and company image that ultimately result in failure-- we can guide

WorldCom was once the second largest telecommunication company in the United States. Currently, the company is known for its enormous accounting scandal from 2002, which led to the company filing for bankruptcy protection. WorldCom executives were able to falsify the company’s accounting figures by inflating the company’s assets by almost $13-billion dollars. The fallout after the company filed for bankruptcy led to huge losses for investors, but also for employees and retailers. The scandal is one of the worst corporate accounting crimes in U.S. history, leading to some of its former executives held personally responsible. WorldCom executives instructed accountants to inflate assets by as much as $11 billion dollars, which led to 30,000 in layoffs and a loss of about $180 billion for its investors.