Worldcom: the Story of a Whistle-Blower Essay

1935 Words Jan 27th, 2011 8 Pages
Question 1
At the time Cynthia Cooper discovered the accounting fraud, WorldCom did not have a whistle-blower hotline process in place. Instead, Cynthia took on significant risks when she stepped over Scott Sullivan’s head and notified the audit committee chairman of her findings. Discuss the key criteria for the operation of an effective corporate whistle-blower hotline. Be sure to highlight potential pitfalls that should be avoided and reference professional codes, legislation and academic literature as appropriate.

A whistle-blower is an organisation member (former or current) who discloses illegal, immoral or illegitimate practices under the control of their employers, to other persons or organisations that may be able to take
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Enron whistle-blower Sharon Watkins recently stated that Enron's lack of response to her concerns ultimately led her to seek help from the media.”
Disadvantages:
Some disadvantages of outside vendor hotline system can be the followings:
“Outside vendor hotline system includes the risk that the attorney-client privilege will not apply to the investigation. Information sent to an outside vendor is discoverable and could be a "smoking gun”.” (David A. Selden, 2004)
“The company cannot control the behaviour of the vendor in the event of a subpoena or government investigation, and the company may be liable in the event of errors by the outside vendor, which generally is less familiar with the company's business.” (David A. Selden, 2004)
“Smaller companies may lack the bargaining leverage to obtain indemnity provisions in their contracts with the outside vendor.” (David A. Selden, 2004)
Despite these disadvantages, I think this system is one of the most useful means of fighting fraud because “According to the ACFE's 2004 Report to the Nation on Occupational Fraud and Abuse, fraud losses are reduced by nearly 60 percent when a hotline is present.” (Slovin.D, June 2006, Internal Auditor, P.1)

Question 2
Discuss the effectiveness of regulatory reforms, such as the Sarbanes Oxley Act of 2002, in preventing and deterring financial
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